CYBERMEDIA INC, 10-K, 1998-03-30

CYBERMEDIA INC
10-K, 1998-03-30
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM --------------- TO --------------- .

COMMISSION FILE NUMBER 0-21289

CYBERMEDIAT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 95-4347239
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

3000 OCEAN PARK BLVD., SUITE 2001, SANTA MONICA, CALIFORNIA 90405
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(310) 581-4700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.01 PAR VALUE
------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 20, 1998, was approximately $72,479,000 based on the
closing price reported for such date on the Nasdaq National Market System. For
purposes of this disclosure shares of Common Stock held by each executive
officer and director and by each holder of 5% or more of the outstanding shares
of Common Stock have been excluded from this calculation because such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

As of March 20, 1998, Registrant had 12,725,203 shares of Common Stock
outstanding
------------------------

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy Statement for the Registrant's 1998 Annual Meeting of
Stockholders (the "Proxy Statement") are incorporated by reference into Part III
of this Annual Report on Form 10-K.
================================================================================
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PART 1

THIS ANNUAL REPORT ON FORM 10-K FOR CYBERMEDIA, INC. (THE "COMPANY"), AND
THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE CONTAIN FORWARD-LOOKING
STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS ARE
BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT CYBERMEDIA'S
INDUSTRY, MANAGEMENT'S BELIEFS, AND CERTAIN ASSUMPTIONS MADE BY CYBERMEDIA'S
MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES", "SEEKS", "ESTIMATES", VARIATIONS OF SUCH WORDS AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE SET
FORTH HEREIN UNDER "FACTORS THAT MAY EFFECT FURTHER RESULTS" ON PAGES 19 THROUGH
28, AS WELL AS THOSE NOTED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY
ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS
SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH
THE SECURITIES AND EXCHANGE COMMISSION, PARTICULARLY THE QUARTERLY REPORTS ON
FORM 10-Q AND ANY CURRENT REPORTS ON FORM 8-K.

ITEM 1. BUSINESS

BUSINESS

Cybermedia, Inc. (the "Company"), a Delaware corporation, was incorporated
in California in November 1991, and was subsequently reincorporated in Delaware
in October 1996. CyberMedia is a leading provider of automatic service and
support software products for Windows-based PC users. The Company's products,
which include First Aid, UnInstaller, Guard Dog Deluxe, Oil Change, and
CyberMedia Support Server, enable users to support their PCs and reduce their
reliance on costly and increasingly scarce technical support services. The
Company has had at least one product among the top ten best-selling Windows
business software sold in the United States (by number of units) in each month
from January 1996 through December 1997, according to PC Data. On December 8,
1997 the Company introduced the CyberMedia Support Server (CSS) Repair Engine
for Workgroups, the first product in the CyberMedia Support Server line of
Automatic Technical Support products and services, targeting the business and
enterprise markets. CSS is designed for workgroups within larger corporations
and small-to mid-size businesses and developed specifically to address the PC
technical support burden and the rising total cost of PC ownership (TCO).

In today's typical Windows-based PC configuration, the integration of a
wide range of hardware and software components from different vendors coupled
with a greater use of the Internet has resulted in an increase in the number and
types of system errors, technical difficulties and security concerns. PC users,
corporate Information Systems (IS) administrators and software and hardware
vendors share a common need for the timely resolution of technical support
problems. These technical support problems are compounded by the complexity of
today's PC environment and a decline in the technical sophistication of the
average PC user. In response to cost pressures and often unmanageable levels of
technical support calls, many software and hardware vendors are scaling back or
completely eliminating the technical support that they once provided free of
charge. In the enterprise market, widespread deployment of PCs has resulted in
rising support costs and total cost of ownership. These costs have arisen due to
non-standard desktop configurations, software conflicts and incompatibilities,
and the increasingly complex nature of PC applications.

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The Company believes that the Internet is emerging as a medium for vendors
to quickly and cost-effectively disseminate software updates and patches to
correct problems or resolve compatibility issues associated with their products.
Despite the potential benefits of the Internet, the Company believes that few PC
users have the time or technical knowledge required to identify, locate,
download and install the updates and patches that apply to their PCs. In
addition, PC users accessing the Internet need to maintain security and privacy
as well as to protect their PCs from viruses and other threats.

The Company has developed an automated approach to technical service and
support that enables the Company to deliver software support solutions to
Windows-based PC users. The Company's products are based on its scalable
ActiveHelp architecture that allows for the support of a broad range of PC
products and enables the Company's products to be regularly updated through the
Internet. The Company's products utilize a knowledge base of general and
system-specific information encompassing a wide range of software applications,
PC hardware and peripherals, networks and security threats. The Company's
objective is to capitalize on the growing need for technical support by being
first to market with innovative products and product upgrades that leverage the
Company's proprietary technology and incorporate feedback from its user base.

The Company's products enable PC users to fix, update, clean and guard
their PCs. The Company's flagship First Aid family of products is designed to
detect, diagnose and resolve a wide range of software conflicts and enable PC
users to diagnose and resolve problems without relying on costly and
increasingly scarce technical support services. In addition to First Aid, the
Company markets UnInstaller, Guard Dog Deluxe and Oil Change. UnInstaller allows
users to safely uninstall unwanted Windows applications, identify and delete
duplicate or unwanted files, and move applications to different folders, drives
or computers while maintaining intact existing links. Guard Dog Deluxe is a
personal Internet privacy and security software product that protects PC users
by maintaining a "firewall" around critical and sensitive information, such as
passwords and financial records as well as by providing traditional anti-virus
protection. Oil Change is an Internet-based software product that is designed to
provide a solution for PC users to locate many of the most recent software
updates and patches applicable to their systems and download and install them,
often automatically, through the Internet.

The Company is currently developing a line of automatic service and support
products to address the needs of the enterprise market. The first product in
this line, CSS Repair Engine, was released in December 1997. Leveraging First
Aid's recognition and repair functionality, CSS Repair Engine provides IS
administrators with centralized and automated detection, diagnosis and
resolution of a wide range of software conflicts and configuration problems
associated with Windows-based client PCs.

PRODUCTS

The Company's products enable users to support their PCs while reducing
reliance upon costly and increasingly scarce technical support services. The
Company's scalable ActiveHelp architecture supports a broad range of PC products
by providing the following: automatic diagnosis and resolution of computer
problems, protection of system integrity by creating a backup of all changes to
critical configuration files, regular and automatic updating of system and
application files through the Internet, safe and controllable uninstallation and
transportation of installed programs, and protection against many Internet-borne
viruses, hostile Java applets, ActiveX controls and privacy threats. Each of the
Company's products includes a 60-day unconditional money-back guarantee. The
Company's ActiveHelp product family is currently comprised of the following
products:

First Aid

The First Aid family of products is designed to automatically detect,
diagnose and resolve a wide range of software conflicts and configuration
problems associated with Windows-based PCs using the Company's knowledge base of
product and vendor-specific technical support information. This knowledge base,
which is installed locally on a PC when First Aid is installed, can be updated
by connecting through the Internet to the Company's regularly updated ActiveHelp
Center server.

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In 1994, 1995 and 1996 virtually all of the Company's sales were from the
First Aid family. The First Aid family of products has included First Aid, First
Aid 95, First Aid 95 Deluxe, First Aid 97, First Aid 98 and First Aid 98 Deluxe.
First Aid products are currently available for Windows 95, Windows 3.1 and
Windows for Workgroups 3.11.

Key features of the First Aid family include the following:

- Fixes many configuration and setup problems with Windows applications by
ensuring that all Dynamic Linking Library (DLL) files required by an
application at startup are present in the correct directories. Locates
and copies misplaced DLLs to the correct directories when needed.

- Performs feature-by-feature checks on many popular applications. Detects
and fixes problems caused by misplaced DLLs and invalid entries in
Windows configuration files.

- Detects setup problems with many popular multimedia cards and CD-ROM
drives. Corrects problems by installing proper drivers and modifying
configuration files as needed.

- Identifies and resolves many setup problems with modems, on-line access
services and local area networks.

- Intercepts many General Protection Faults and other crashes. Returns
users to their original application where they can save their work that
may have been lost otherwise.

- Verifies whether disk caches, memory buffers and other parameters on a PC
have been set for optimal performance. Makes recommendations that can
help boost PC performance.

- Allows users to recover hard disk space by removing and archiving
infrequently used features in many popular applications.

- Automatically monitors changes in a PC's configuration files. Enables
users to restore the PC to a prior working configuration if the PC fails
to work properly.

- Creates an emergency disk that backs up critical files and parameters.
The emergency disk can be used to reboot and restore a PC's setup files
in the event those files are destroyed.

- Enables users to update the First Aid knowledge base on their PCs through
automatic downloads from the ActiveHelp Center server, an up-to-date
knowledge base residing on the Company's Internet server.

First Aid 98

First Aid 98 was introduced in the third quarter of 1997. The fifth
generation of First Aid products, First Aid 98 includes all of the features of
previous versions with the following added features:

- Repairs many Internet access problems by examining the entire PC Internet
setup -- modem, browser and Internet service provider settings -- and
readjusting the system, or reinstalling or updating files.

- Identifies damaged or corrupted program and system files and replaces
them with the original files from the manufacturer, alleviating the need
to reinstall entire programs or Windows itself.

- Features a simpler, easier to use graphical interface.

- Addresses many start-up problems by reinstalling critical components of
Windows which may be damaged or missing.

The First Aid 98 Deluxe version includes anti-virus protection and removal
as well as a PC Cleaning Kit and Guide for cleaning the computer monitor,
keyboard, mouse, disk drive, CD-ROMs and the CPU exterior.

UnInstaller

UnInstaller allows users to uninstall unwanted Windows applications,
identify and delete duplicate or unwanted files, and move applications to
different folders, drives or computers while maintaining intact

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existing links. UnInstaller allows the PC user to "clean out" unneeded files and
applications and thereby free up valuable disk space and improve the PCs
performance.

The Company acquired the worldwide distribution and future development
rights to MicroHelp UnInstaller from Luckman Interactive, Inc. in April 1997. In
May 1997, the Company introduced the product as UnInstaller 4.5, a faster,
Internet-enabled version.

Guard Dog Deluxe

Introduced in September of 1997, Guard Dog Deluxe is a personal Internet
privacy and security software product designed for Windows 95 users. Guard Dog
Deluxe protects PC users by maintaining a personal "firewall" around critical
and sensitive information, such as passwords and financial records, as well as
by providing anti-virus protection. Guard Dog Deluxe can detect attacks from
sources such as hostile ActiveX controls and Java applets as well as viruses
addressed by other anti-virus software products. It also automatically blocks
unwanted "cookies" (data files that are placed on a PC by Web sites to collect
information including the PC user's browsing habits), and blocks search requests
and other data entered at a Web site from being forwarded silently to other
sites.

Oil Change

Oil Change, which is currently available for Windows 95, is an
Internet-based software product that is designed to provide a solution for PC
users to locate easily many of the most recent software updates and patches
applicable to their systems and download and install them through the Internet.
Oil Change enables PC users to keep their systems up-to-date, thereby enhancing
overall system performance and avoiding problems frequently encountered as a
result of outdated software and device drivers.

Oil Change examines a user's PC and develops a profile of the installed
software applications and hardware device drivers. Oil Change then connects to
the Company's ActiveHelp Center server through the Internet to compare this
profile with the Company's regularly updated central knowledge base of
information on updates and patches available at various vendor Web sites. Oil
Change offers the user a list of available updates and patches and the problems
that these updates and patches are intended to resolve. Upon the PC user's
request, Oil Change retrieves and installs selected updates and patches.

CyberMedia Support Server

The Company is leveraging its ActiveHelp architecture to develop a line of
automatic service and support products to address the needs of the enterprise
market. The first product in this line, CSS Repair Engine for Workgroups, was
released in December, 1997. Leveraging the latest First Aid recognition and
repair functionality, CSS Repair Engine provides IS administrators with
centralized and automated detection, diagnosis and resolution of a wide range of
software conflicts and configuration problems associated with Windows-based
client PCs. CSS Repair Engine's administration console allows control by system
administrators through a web browser. A TimeTrak feature controls use of problem
applications, such as games in the network environment, and allows restoration
of machines with damaged registries, failed installations, and other related
problems by allowing controlled restoration of previous registry and
configuration settings. CSS Repair Engine for Workgroups has been initially
released for the Windows NT Servers 4.0 supporting Windows 95, Windows 3.x and
Windows NT clients.

TECHNOLOGY

The Company's ActiveHelp technology consists of three components, Agents,
the ActiveHelp Center server and ActiveHelp Studio, which together provide an
open, scalable architecture for developing and continually updating the
Company's automatic service and support software products.

Each of the Company's products incorporates Agents, client-level software
that detects and solves problems locally at the user's PC. These Agents connect
to the Company's ActiveHelp Center server through the Internet to access
centralized knowledge bases of technical support information. Information on the

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ActiveHelp Center server is regularly updated and expanded using the ActiveHelp
Studio, the Company's tools set. ActiveHelp Studio enables technical support
information to be defined and added to the ActiveHelp Center server in a
standardized format.

DISTRIBUTION, MARKETING AND STRATEGIC ALLIANCES

Distribution

The Company sells its products to individual and corporate users primarily
through retail distribution channels. In addition, the Company sells its
products to end users through direct mail and the Internet. The Company is
expanding the marketing and sale of its products internationally and through
certain strategic partners. The Company also is seeking to expand its
distribution to include Value Added Resellers (VAR) in order to access the
enterprise market.

Domestic. The Company's principal domestic channels of distribution are
through software distributors for resale to the retail sales channel. Net sales
to the Company's top two distributors, Ingram Micro and Navarre, accounted for
approximately 25% and 25% of net revenues, respectively both in 1997 and in
1996, and 16% and 9%, respectively, in 1995. The Company's products are
currently available at more than 10,000 locations through major retailers,
including CompUSA Inc., Sam's Club, Micro Center, Egghead Software, Computer
City, Fry's Electronics, Inc., Office Depot, Inc., Best Buy and Price Costco
Inc.

The Company monitors the levels of purchases and returns on a customer by
customer basis. Sales are made subject to rights of return and reserves are
established at time of shipment for future return of product based on product
history, analysis of retail sell-through and other factors. Product returns, or
obligations resulting from the Company's price protection policy, that exceed
the Company's reserves could adversely affect the Company's business, results of
operations and financial condition.

International. The Company markets its products through authorized
distributors in the United Kingdom, Australia, Japan, Germany, France and Italy
who resell to retail stores. International sales accounted for approximately 10%
and 19% of the Company's net revenues in 1996 and 1997, respectively. The
Company has developed localized versions of certain of its ActiveHelp products
for the French, German, United Kingdom, Japanese and Italian markets.

Marketing

The Company's marketing strategy in retail distribution channels has
typically focused on high impact product packaging, end-caps and rebate coupons.
In addition, the Company engages in public relations activities which involve
introducing its products to local user groups and obtaining press coverage in
regional and national trade and technical publications. From time to time, the
Company has used direct mail campaigns targeted specifically at Windows-based PC
users. Beginning in the second quarter of 1996, the Company has been engaged in
an advertising campaign using print and radio to increase end-user awareness and
stimulate purchases. The Company continues to use such advertising to promote
its products.

The Company's marketing activities also include participation in trade and
computer shows and cooperative advertising programs directly with certain
distributors and retailers, whereby the Company receives marketing opportunities
through advertisements, brochures, and catalogs. The Company provides for
expenses related to these programs either directly to retailers or through its
distributors or resellers, in amounts established either on a case by case
basis, in individual distributor agreements or in modifications thereto.
Additionally, the Company from time to time offers rebates to end users who
purchase the Company's products.

The Company's sales and marketing force as of December 31, 1997 consisted
of 63 people, all of whom receive salaries, commissions, and/or incentive bonus
compensation. The Company's in-house marketing department coordinates most of
the design and development of the Company's product packaging, advertisements
and promotional items. The Company expects to increase its use of outside
agencies to support the promotional efforts of the Company's product families
and the expansion into new markets.

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Strategic Alliances

The Company has established strategic alliances with third-party vendors to
enhance the functionality and increase the distribution of its automatic service
and support products. Set forth below are examples of some of the agreements
into which the Company has entered.

The Company has entered into relationships with third parties including
Diamond Multimedia Systems, Inc., NEC Technologies, Inc., Fujitsu PC
Corporation, AST Research, Inc. and a division of Sony Electronics, Inc. for
bundling certain of its products. In addition, the Company has entered into an
agreement with CompUSA Inc. to bundle customized versions of certain of its
products with extended service agreements sold to CompUSA Inc. PC customers. The
Company joined with CompuServe Incorporated to provide automatic updates to PC
users by integrating Oil Change with CompuServe's premium on-line service,
Computing Pro.

In September, 1997, the Company announced an agreement with Broderbund
Software, Inc. to promote Oil Change as an easy method for consumers to update
their computer games with the latest sound and video drivers and patches.

The Company has entered into strategic technological alliances including
agreements with ServiceWare Inc. and Trend Micro, Inc. Under the ServiceWare
Inc. relationship, the Company is integrating ServiceWare Inc.'s new knowledge
management products, Knowledge-Pak Architect and Knowledge-Pak Viewer, across
its entire product line, including its upcoming enterprise product offerings.
This will enable the Company to expand its own ActiveHelp knowledge base of
problem solving information by allowing administrators to incorporate additional
sources of knowledge and customize the standard knowledge base content shipped
with ActiveHelp products. This added functionality will also provide users of
the Company's software products with greater flexibility in adding custom
resolutions to resolve PC support specific to their local environment.

Under the Trend Micro, Inc. relationship, the Company is integrating Trend
Micro's anti-virus technology into the Company's ActiveHelp product family.
Trend Micro's anti-virus technology has first been integrated into First Aid 98
Deluxe and Guard Dog Deluxe.

There can be no assurance that any of these agreements will generate
revenues for the Company or that they will not be amended or terminated prior to
their expiration because of changed commercial conditions or otherwise. For
example, in October of 1997, the Company amended its distribution agreement with
Phoenix Technologies, Ltd. and currently does not expect to recognize
significant revenues in connection with such amended agreement.

TECHNICAL SUPPORT

The Company provides support to purchasers of its software products. End
users are able to consult directly with software support personnel with respect
to software use, hardware problems and peripheral needs or receive on-line
support. For retail customers, the Company offers extended weekday service
coverage and six hours of support on both Saturday and Sunday. Also, the Company
provides a substantial amount of its technical support through on-line forums,
such as America Online, Inc. and CompuServe. For enterprise market clients, the
Company currently intends to offer a variety of fee-based options, providing a
range of service levels designed to meet the technical support requirements of
enterprise clients. In Europe, technical support is provided through third
parties. As of December 31, 1997, the Company employed 35 technical support
personnel.

PRODUCT DEVELOPMENT

The Company believes that significant investment in product development is
required in order to remain competitive, accelerate the rate of product
introductions, incorporate new technologies, and sustain and improve the quality
of its products. In addition to engineering and quality assurance, the Company's
product development activities include the identification and validation of a
product's potential commercial success, as well as the incorporation of new
technologies in new products. The Company seeks to gain pre-release access to
and develop expertise in current and future versions of Windows and other
leading hardware and software
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products in order to develop and release such products on a timely basis. The
Company incorporates market research into the design and development of its
products to anticipate the evolving technical support needs of PC users. In
addition, the Company works closely with hardware and software manufacturers to
identify their technical support requirements and to incorporate this feedback
into the development of the Company's products. These efforts are critical in
enabling the Company to be competitive, improve quality and consistency, update
its current products and bring new products to market quickly.

The Company's principal current product development efforts include: (i)
enhancing its ActiveHelp Center knowledge bases to provide support for new
third-party products and updates and patches to current applications, (ii)
increasing the functionality of its current products, (iii) adapting its
products to the enterprise market, (iv) localizing its products for the
international market and (v) developing additional products that address
evolving automatic service and support requirements.

The Company supplements its in-house product development by engaging
work-for-hire software engineers in India. In addition, the Company from time to
time engages other software engineers on a contract basis. The Company has
exclusive ownership of all products developed by such engineers and has no
royalty obligations to these engineers.

Research and development expenses during 1995, 1996 and 1997 were
approximately $964,000, $3.3 million and $9.3 million, respectively. In
addition, during 1997 the Company expensed an aggregate of $11.3 million arising
from acquired in process research and development. As of December 31, 1997, the
Company had 98 full-time employees in research and development.

COMPETITION

The PC software industry is intensely competitive and characterized by
short product life cycles and frequent new product introductions. The Company
competes with software companies of varying sizes and resources, including
Network Associates, Inc., Symantec Corp., Quarterdeck Corporation, SystemSoft
Corporation and others. Furthermore, the Company may compete with other
companies that introduce automatic service and support, security and anti-virus
protection software products. Many of the Company's existing and potential
competitors have substantially greater financial, technical and marketing
resources than the Company. Moreover, there are no proprietary barriers to entry
that could keep existing and potential competitors from developing similar
products or selling competing products in the Company's markets. To the extent
that the Company's competitors bundle their software products with leading
hardware, application software or system vendors, or if one or more of the
system vendors, such as Microsoft Corporation ("Microsoft"), Intel or
International Business Machines (IBM) succeeds in incorporating functionality
comparable, or perceived as comparable, to that offered by the Company into its
products, (or separately offers comparable products), the Company's business,
results of operations and financial condition could be materially adversely
affected. There can be no assurance that the Company will be able to compete
successfully with existing or potential competitors. In particular, Microsoft's
"Zero Administration for Windows" initiative is a collection of technologies
from Microsoft that make the Windows family of systems easier to use for the end
user and easier to manage for IS administrators. There can be no assurance that
any such action by Microsoft, IBM, Intel, or others would not render the
Company's products uncompetitive or obsolete. Furthermore, there can be no
assurance that other software companies with longer operating histories,
significantly greater financial, technical, marketing or other resources,
significantly greater name recognition or a larger installed base of customers
than the Company will not introduce products comparable, or perceived as
comparable, to those of the Company. Increased competition may result in the
loss of shelf space or a reduction in demand or sell-through of the Company's
products, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition.

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may result in price reductions requiring the Company to increase unit sales in
order to maintain historic levels of net revenues, reduced gross margins and
loss of market share, any of which could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors or that competitive pressures faced by the Company will
not materially and adversely affect its business, financial condition and
results of operations.

The enterprise software market targeted by the CyberMedia Support Server
product line is expected to be subject to intense competition from a number of
sources including solutions currently in use by IS administrators. There can be
no assurance that the Company's product line will gain acceptance in the
enterprise market or that, if accepted, competitors with longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than the Company will not introduce products comparable, or perceived
as comparable, to those of the Company.

In addition to software company competitors, the Company also competes
indirectly against alternative sources of technical support, such as the
technical support departments of hardware and software vendors. Additionally,
the Internet provides hardware and software vendors with a new medium to offer
technical support services. The Company expects that many vendors will provide
Internet-based technical support services to support their existing and future
products. The availability of these technical support services could materially
dilute the value of the Company's products and have a material adverse effect on
the Company's business, results of operations and financial condition.

PROPRIETARY RIGHTS

The Company's success is heavily dependent upon its proprietary software.
The Company relies primarily on a combination of copyright, trademark and trade
secret laws, employee confidentiality and nondisclosure agreements and
third-party nondisclosure agreements and other methods of protection common in
the industry to protect its proprietary rights. The Company licenses its
products primarily under "shrink wrap" license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of certain
jurisdictions. In addition, the Company has two United States patent
applications pending and intends to seek international and further United States
patents on its technology. There can be no assurance that patents will issue
from the Company's pending applications or that any claims allowed from the
pending patent applications or those hereafter filed will be of sufficient scope
or strength, or be issued in all countries where the Company's products can be
sold, to provide meaningful protection or any commercial advantage to the
Company or that any patents which may be issued to the Company will not be
challenged and invalidated. Although from time to time CyberMedia obtains
copyright registrations on certain items of its technology, existing copyright
laws provide only limited protection. Despite the Company's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use products or technology that the Company considers proprietary,
and third parties may develop similar technology independently. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. There can be
no assurance that the Company's means of protecting its proprietary rights will
be adequate. In addition, there can be no assurance that the Company's
competitors will not independently develop technologies and products that are
substantially equivalent or superior to those of the Company without violating
the Company's proprietary rights.

As the number of software products in the industry increases and the
functionality of these products increasingly overlaps, software developers may
become increasingly subject to infringement claims. From time to time, the
Company has received communications from third parties asserting that certain
products may infringe upon the intellectual property rights of others. To date,
no such claim has resulted in litigation or the payment of any damages. However,
there can be no assurance that existing or future infringement claims against
the Company with respect to current or future products will not result in costly
litigation or require the Company to enter into royalty bearing licenses with
third parties or to discontinue use of certain portions of the Company's
technology if licenses are not available on acceptable terms.
8
<PAGE> 10

"CyberMedia" and "First Aid" are registered U.S. trademarks of the Company.
The Company also claims trademark protection in the United States and/or has
applications pending in the U.S. Patent and Trademark Office for more than a
dozen additional trademarks.

The Company intends to continue expansion of the international distribution
of its products. The laws of some foreign countries either do not protect the
Company's proprietary rights or offer only limited protection for those rights.
The Company has not registered its copyrights in any foreign countries. While in
most foreign countries registration is not required in order to receive
copyright protection, the ability to bring an enforcement action and obtain
certain remedies depends on compliance with that country's copyright laws.
Consequently, the Company's failure to register its copyrights abroad may make
enforcement of these rights more difficult or reduce the available remedies in
any enforcement action. The Company is currently pursuing further foreign
registration of its trademarks on a limited basis, but due to the substantial
costs involved and potential prior existing rights, unfavorable laws or other
obstacles to obtaining trademark protection, the Company may not be able to
prevent a third party from using its trademarks in a foreign jurisdiction.

"CyberMedia" is a registered United Kingdom trademark, and "First Aid" is a
registered Australian trademark of the Company. The Company is currently
pursuing further foreign registration of its trademarks on a limited basis, but
due to the substantial costs involved and potential prior existing rights,
unfavorable laws or other obstacles to obtaining trademark protection, the
Company may not be able to prevent a third party from using its trademarks in a
foreign jurisdiction.

OPERATIONS

The production of the Company's software products includes media
duplication, purchased component assembly, printing of user manuals and final
packaging. The Company contracts with outside parties to perform these functions
to the Company's specifications and quality standards. The Company currently
does not have long-term agreements with any of these parties. Although the
Company believes that alternative resources exist or can be obtained, a
disruption of the Company's relationship with any of these outside parties could
adversely affect the Company's business, results of operations and financial
condition until replacement sources are established. In addition, any material
changes in product and service quality and pricing or failure to adhere to the
Company's specifications by these outside parties could adversely affect the
Company's business, results of operations and financial condition. The Company
has attempted to mitigate the risk of any such disruption by maintaining certain
levels of "safety stock" inventories and using second source vendors in certain
limited situations. In the past, the Company has experienced material
difficulties and delays in the manufacture and assembly of its products. There
can be no assurance that the Company will not continue to experience such
difficulties in the future. As of December 31, 1997, the Company had a total of
15 employees in operations.

BACKLOG

The Company normally ships products within one week after receipt of an
order. As a result, the Company has relatively little backlog at any time and
does not consider backlog to be a significant indicator of future performance.

EMPLOYEES

As of December 31, 1997, the Company employed a total of 257 full-time
employees, including 12 in operations, 63 in sales and marketing, 35 in
technical support, 98 in research and development and 28 in finance and
administration. The Company also employs, from time to time, a number of
temporary and part-time employees as well as consultants on a contract basis.
The Company has experienced both employment growth as well as turnover from
attrition in the past year and expects to hire personnel during the next twelve
months in each of these areas. The Company's future success will depend in part
on its ability to attract, train, retain and motivate highly qualified
employees, who are in great demand. There can be no assurance that the Company
will be successful in attracting and retaining such personnel. The Company's
employees are not represented by a collective bargaining organization, and the
Company has never experienced a work stoppage

9
<PAGE> 11

or strike. The Company considers its employee relations to be good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company as of December 31, 1997 were as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Unni S. Warrier......................... 43 President, Chief Executive Officer
and Chairman of the Board
Leonard L. Backus....................... 45 Vice President, International
Sales
Jeffrey W. Beaumont..................... 45 Vice President, Finance, Chief
Financial Officer and Treasurer
Robert Davis............................ 39 Vice President, Marketing
</TABLE>

Subsequent to year end, Mr. Backus, Mr. Beaumont and Mr. Warrier each
resigned, on January 1998, February 1998, and March 1998, respectively.
Permanent replacements for the positions previously held by Mr. Beaumont and Mr.
Warrior have not yet been named.

Mr. Warrier served as President, Chief Executive Officer and Chairman of
the Board of the Company from November 1991 to March 1998. From February 1991 to
November 1991, he served as an independent consultant. From May 1989 to February
1991, he served as President and Chief Executive Officer of NetLabs, Inc., a
maker of UNIX network management products, which Mr. Warrier co-founded. Mr.
Warrier holds a B. Tech. in Physics from the Indian Institute of Technology of
Kanpur, India and an M. Tech. in Computer Science from the Indian Institute of
Technology of Madras, India. Mr. Warrier has also completed coursework for a
Ph.D. in Computer Science from the University of California, Los Angeles.

Mr. Backus served as Vice President, International Sales of the Company
from April 1996 to January 1998. Prior to joining the Company, from October 1995
to April 1996, he served as a Principal for Technology Marketing Alliance, a
consulting company. Prior to that, Mr. Backus served as Vice President,
International Sales and Marketing, of MediaVision Technology, Inc., a computer
hardware manufacturer from July 1994 to October 1995, and as Director of
International Sales of MediaVision Technology, Inc. from February 1991 to July
1994. Mr. Backus holds a B.S. in Electrical Engineering from the University of
Washington and an M.S. in Electrical Engineering from the University of Southern
California.

Mr. Beaumont served as Vice President, Finance and Chief Financial Officer
of the Company from December 1995 to February 1998. From June 1995 to December
1995, he served as an independent consultant to various companies. Prior to
joining the Company, from October 1994 to June 1995, he served as Chief
Financial Officer of Blyth Holdings, Inc., a software development company. From
August 1989 to October 1994, Mr. Beaumont served as Chief Financial Officer at
Davidson & Associates, Inc., an educational software development company. Mr.
Beaumont holds a B.A. in History from Hamilton College and an M.B.A. from the
University of Michigan.

Mr. Davis has served as Vice President, Marketing of the Company since June
1997. From April 1995 to May 1997 he served as Vice President of Marketing and
Business Development at Iterated Systems, Inc., a software company. From June
1991 to December 1994 he held the positions of Vice President and general
manager of the Connectivity Products Division and Senior Vice President of
Corporate Marketing at Novell, Inc., a software company. Mr. Davis holds a B.S.
in Electrical Engineering from Purdue University and an M.B.A. in marketing from
Santa Clara University.

ITEM 2. PROPERTIES

The Company leases approximately 73,000 square feet of office space in
Santa Monica, California, approximately 8,000 square feet in San Jose,
California and approximately 10,000 square feet in Tigard, Oregon. The Santa
Monica facility serves as the Company's headquarters. The Company believes that

10
<PAGE> 12

suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.

ITEM 3. LEGAL PROCEEDINGS

The Company and an individual officer of the Company have been named and
served as defendants in a civil complaint filed in the Los Angeles County
Superior Court on December 22, 1997 by Brad Kingsbury. Mr. Kingsbury is a former
employee of the Company. The complaint, as filed, alleges against the Company
certain causes of action including breach of contract, breach of good faith and
fair dealing, fraud and negligent misrepresentation arising from an alleged
grant of stock options and alleged accelerated vesting of such options. The
Company intends to vigorously defend against any and all such claims and
allegations.

The Company has filed in June 1997 a civil complaint against Roderick
Manhattan Group for royalties owed in the amount of approximately L239,000.
Roderick Manhattan Group has counterclaimed in the amount of approximately
L167,000 for lost commissions, marketing costs and value of goods returned.

On February 4, 1998, the Company filed a lawsuit in United States District
Court for the Northern District of California against Symantic Corporation,
ZebraSoft, Inc. and certain of ZebraSoft, Inc.'s individual officers and
directors alleging that the defendants violated federal copyright laws and
misappropriated the Company's trade secrets in developing and distributing a
computer software program competitive with the Company's UnInstaller program,
and the Company is seeking money damages and injunctive relief against the
defendants.

On March 11, 1998, defendants Symantec and ZebraSoft filed counterclaims
against the Company for slander, libel, product disparagement and related state
law claims. The defendants' counterclaims seek unspecified money damages and
injunctive relief. The Company intends to defend against the counterclaims
vigorously.

On March 13, 1998, a shareholder class action complaint was filed against
the Company and certain of its current and former officers and directors. The
complaint, Ong v. CyberMedia, No. 98-1811, was filed in the Central District of
California. The complaint alleges a class period between July 22, 1997 and March
13, 1998. The complaint asserts claims under Sections 10(b) and 20(a) of the
Securities and Exchange Act of 1934. On March 19, 1998, a second class action
complaint was filed against the Company and certain of its officers and
directors. The complaint, Brown v. CyberMedia, No. B C187898, was filed in the
Superior Court of Los Angeles County. It alleges a class period from March 31,
1997 through March 12, 1998, and asserts claims under Sections 25400 and 25500
of the California Corporations Code, Sections 1709-1710 of the California Civil
Code, and Section 17200 of the California Business and Professions Code. On
March 24, 1998, a third class action complaint was filed against the Company and
certain of its officers and directors. The complaint, John v. CyberMedia, No.
98-2085, was filed in the Central District of California. The complaint alleges
a class period between March 31, 1997 and March 13, 1998. The complaint assets
claims under Sections 10(b) and 20(a) of the Securities and Exchange Act of
1934. The Company intends to defend against these actions vigorously.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1997.

11
<PAGE> 13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION FOR COMMON EQUITY

The Common Stock of the Company commenced trading publicly on the Nasdaq
National Market on October 23, 1996 and is traded under the symbol CYBR. The
following table sets forth for the periods indicated the high and low sales
prices for the Common Stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996
Fourth Quarter (from October 23, 1996)........... $25.500 $14.250
FISCAL YEAR ENDING DECEMBER 31, 1997
First Quarter.................................... 22.000 7.875
Second Quarter................................... 20.500 8.500
Third Quarter.................................... 28.250 12.500
Fourth Quarter................................... 30.875 13.625
FISCAL YEAR ENDING DECEMBER 31, 1998
First Quarter (through March 20, 1998)........... 16.75 6.75
</TABLE>

On March 20, 1998 the last reported sale price of the Common Stock of the
Company on the Nasdaq National Market was $7.50. As of March 20, there were
approximately 364 holders of record of the Company's Common Stock.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain its earnings, if any, for use in
the operation of its business. In addition, an existing loan agreement prohibits
the Company from paying cash dividends on its capital stock without the lender's
written consent. See Note 5 of Notes to Consolidated Financial Statements.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data presented below for each
of the years in the five-year period ended December 31, 1997, are derived from
the consolidated financial statements of the Company, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of December 31, 1996 and
1997, and for each of the years in the three-year period ended December 31,
1997, are included elsewhere in this Report. Statement of operations data for
the years ended December 31, 1993 and 1994 and balance sheet data as of December
31, 1993, 1994 and 1995 is derived from audited financial statements not
included herein. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial

12
<PAGE> 14

Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Report.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $ 55 $ 241 $ 4,797 $38,524 $ 71,227
Cost of revenues....................... 14 106 2,103 11,991 14,477
Gross profit........................... 41 135 2,694 26,533 56,750
Operating expenses:
Research and development............ 468 544 964 3,300 9,333
Sales and marketing................. 220 439 4,036 24,125 39,464
General and administrative.......... 84 247 987 2,941 6,940
One-time in-process research and
development and acquisition
expenses.......................... -- -- -- -- 11,341
------ ------- ------- ------- --------
Total operating expenses....... 772 1,230 5,987 30,366 67,078
------ ------- ------- ------- --------
Operating loss......................... (731) (1,095) (3,293) (3,833) (10,328)
Other income (expense)................. -- (19) (58) 351 1,170
------ ------- ------- ------- --------
Loss before taxes...................... (731) (1,114) (3,351) (3,482) (9,158)
Income tax expense..................... 1 1 1 1 2,582
------ ------- ------- ------- --------
Net loss............................... $ (732) $(1,115) $(3,352) $(3,483) $(11,740)
====== ======= ======= ======= ========
Net loss per share(1).................. $(0.57) $ (0.86) $ (2.56) $ (0.88) $ (0.97)
====== ======= ======= ======= ========
Shares used to compute net loss per
share(1)............................ 1,282 1,295 1,311 3,943 12,128
BALANCE SHEET DATA:
Working capital (deficit)........... $ (333) $ (671) $ 434 $42,727 $ 33,578
Total assets........................ 25 189 3,855 56,450 60,103
Total liabilities................... 635 1,344 3,848 12,782 23,459
Total stockholders' equity
(deficiency)...................... (610) (1,155) 7 43,668 36,644
</TABLE>

- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended. Actual results could differ materially from those set forth in
such forward looking statements as a result of the factors set forth under
"Factors That May Affect Future Results" and other risks detailed from time to
time in the Company's reports filed with the Securities and Exchange Commission.

OVERVIEW

The Company is a leading provider of software products that provide
automatic service and support to PC users in the Windows environment. The
Company commenced operations in November 1991 and introduced its first automatic
service and support product, Win Win, in 1993. The Company introduced First Aid
95, the first Windows 95 compatible version of its ActiveHelp product line, in
September 1995. During 1996 and 1997, over 90% and over 75%, respectively, of
the Company's net revenues were attributable to sales of its First Aid products.

In October 1996, the Company introduced Oil Change, a product that updates
many software applications and device drivers on a user's PC over the Internet.
During the second quarter of 1997, the Company acquired MicroHelp UnInstaller, a
product that uninstalls Windows applications and incorporated

13
<PAGE> 15

the MicroHelp UnInstaller software code in the development of its new
UnInstaller product introduced in May of 1997. In September 1997, the Company
released First Aid 98, and Guard Dog Deluxe, a personal security and privacy
product for Internet users. The Company also has a number of new product
development efforts under way, including its first enterprise product, CSS
Repair Engine, which was released during 1997 and international versions of
First Aid 98. A portion of future revenues is dependent on the success of these
activities. There can be no assurance that Oil Change, UnInstaller, Guard Dog
Deluxe, First Aid 98 or CSS Repair Engine will achieve or sustain significant
market acceptance, and the failure of any of these products to achieve or
sustain such acceptance could have a material adverse effect on the Company's
future financial results.

The Company has a limited operating history upon which to base an
evaluation of its business and prospects. From inception to December 31, 1997,
the Company generated net sales of approximately $114.8 million, of which $109.8
million, or 96% of such amount, was generated in 1996 and 1997. The Company has
incurred net losses in each of the last seven fiscal years. At December 31,
1997, the Company had an accumulated deficit of $20.8 million. With the
introduction of First Aid 95, the Company began focusing on building its product
line and establishing brand name awareness of its products, which resulted in
significantly increased operating expenses. The Company anticipates that its
operating expenses may increase in absolute dollars or as a percent of revenues
in the future as a result of efforts to expand its sales and marketing
operations to fund greater levels of product development and to increase its
administrative infrastructure. The Company expects to fund operations from
currently available cash and investment balances, cash generated from
operations, if any, and existing credit lines. The Company also believes that
additional debt or equity offerings will be available to it should the need
arise. Future operating results will depend upon many factors, including the
demand for the Company's software products, the level of product and price
competition, the Company's success in introducing new products, the Company's
success in expanding its direct and indirect distribution channels, the
Company's success in selling products in the enterprise market, the Company's
success in attracting and retaining motivated and qualified personnel, the
growth of activity on the Internet and the Web, the ability of the Company to
develop or acquire new products and to control costs and general economic
conditions. Many of these factors are beyond the Company's control. There can be
no assurance that the Company will be successful in addressing such risks.

The Company sells its products primarily to distributors for resale to the
retail channel. In addition, the Company sells its products to end users through
direct mail and over the Internet. Sales to the Company's top two distributors,
Ingram Micro and Navarre, accounted for approximately 25% and 25%, respectively,
of the Company's net revenues in 1997 and 1996. No other single customer
accounted for more than 10% of net revenues during these periods. Net revenues
from direct sales in 1997 and 1996 represented approximately 8% and 30% of net
revenues in each of these periods, respectively. Sales from direct mail, which
comprise a large proportion of direct sales, have historically operated at lower
profitability levels than sales through distributors. Accordingly, quarterly
shifts in the mix of sales through distributors and through direct sales could
cause fluctuations in the Company's profitability. There can be no assurance
that the mix of sales or the relative profitability by distribution channel will
remain at current levels in the future.

Revenues are generated from sales of software to distributors, resellers
and end-users and are recognized upon shipment of products, net of provisions
for estimated future returns and price protection, provided that no significant
vendor obligations remain and collection of accounts receivable is deemed to be
probable. With the introduction of First Aid 95 in September 1995, CyberMedia
implemented a policy of offering customers updates to its ActiveHelp products
over the Internet at no additional cost. Given this policy and because updates
are a fundamental and integral part of its ActiveHelp products, the Company
defers a portion of all First Aid, Oil Change, UnInstaller, Guard Dog Deluxe and
CSS revenues ratably over estimated update periods, generally one year from the
date of sale. At December 31, 1997 the Company's consolidated balance sheet
included $3.7 million of unearned revenues which will be recognized ratably over
the estimated update periods, generally one year. To the extent that revenues
from these products continue to grow on a quarterly basis, the total amount of
deferred revenue may increase and be reported on the consolidated balance sheet
as unearned revenue.

14
<PAGE> 16

The Company monitors the levels of purchases and returns on a customer by
customer basis. Sales are made subject to certain rights of return and reserves
are established at time of shipment for potential future return of product based
on product history, analysis of retail sell-through and other factors.

During the fourth quarter of 1997, the Company shipped significant
quantities of three of its products which had been initially introduced during
the second and third quarters of 1997. Based upon information provided by
certain distributors subsequent to December 31, 1997 and management's estimates
using such information, the Company anticipates that a material amount of these
fourth quarter shipments will be returned pending retail channel sell-through of
quantities shipped in earlier periods. Accordingly, the Company recorded in its
fourth quarter, $12.6 million of reserves for future returns of these shipments.

During the first quarter of 1998 the Company worked with its major
distributors to adjust inventory levels and bring their accounts receivable
balances current. These distributors have responded at a level which the Company
believes is appropriate to meet the demand in the market for the Company's
products. As a result, the Company has announced that it expects to report
revenues between $5-$8 million for the quarter ending March 31, 1998.

In accordance with Statement of Financial Accounting Standards No. 86, the
Company is required to capitalize eligible computer software development costs
upon the achievement of technological feasibility, subject to net realizable
value considerations. To date, the Company has charged all such costs to product
development expenses because the capitalizable portion of such costs has not
been material.

On April 2, 1997, the Company acquired certain assets from Luckman
Interactive, Inc. which included ownership in all intellectual property rights
to MicroHelp UnInstaller, a product requiring significant modifications
including incorporation of the Company's ActiveHelp technologies prior to
completion and introduction. Accordingly, this acquisition was accounted for
largely as in-process research and development and was expensed during the
quarter ended June 30, 1997. Effective April 14, 1997, CyberMedia acquired Walk
Softly, Inc., an Internet privacy software developer, in exchange for CyberMedia
common stock. The acquisition of Walk Softly, Inc. was a pooling-of-interests,
however, due to insignificance of the financial position and results of
operations of Walk Softly, Inc. prior to the acquisition, the financial
statements of the Company prior to 1997 have not been restated. On September 30,
1997, the Company acquired certain rights from ServiceWare Inc. which included
access and resale rights to certain ServiceWare Inc. technology for
incorporation in future products. This transaction was accounted for largely as
in-process research and development and was expensed during the quarter ended
September 30, 1997.

15
<PAGE> 17

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of net revenues, statement
of operations data for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues............................................ 43.8 31.1 20.3
----- ----- -----
Gross profit.............................................. 56.2 68.9 79.7
Operating expenses:
Research and development.................................. 20.1 8.6 13.1
Sales and marketing....................................... 84.1 62.6 55.5
General and administrative................................ 20.6 7.6 9.7
One-time in-process research and development and
acquisition expenses................................... -- -- 15.9
----- ----- -----
Total operating expenses.......................... 124.8 78.8 94.2
----- ----- -----
Operating loss.............................................. (68.6) (9.9) (14.5)
----- ----- -----
Other income (expense), net................................. (1.2) 0.9 1.6
----- ----- -----
Loss before income taxes.................................... (69.8) (9.0) (12.9)
----- ----- -----
Income tax expense.......................................... -- -- 3.6
----- ----- -----
Net loss.................................................... (69.8)% (9.0)% (16.5)%
===== ===== =====
</TABLE>

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

Net Revenues. Net revenues increased 85% from $38.5 million for the period
ended December 31, 1996 to $71.2 million for the same period in 1997. The
Company's net revenues consist of license fees for its software products, less a
provision for estimated returns. The Company sells its products primarily to
distributors for resale to retailers as well as directly to consumers, through
direct mail, the Internet and software catalogs. The growth in net revenues
during these periods was largely attributable to the launch of UnInstaller 4.5
in May 1997 and Guard Dog Deluxe in September 1997 and the expansion of the
Company's international business. The Company does not believe that the
historical growth rates of its net revenues will be sustainable or are
indicative of future results.

For the years ended December 31, 1996 and 1997, the percentage of net
revenues from international sales was approximately 7% and 19%, respectively.
The increase in net revenues from international sales as a percentage of net
revenues between these periods was due to the expansion of the Company's
international operations and the introductions of localized German, Japanese,
French, Italian and International English versions of many of its products. As a
result of the expansion of its international operations, the Company now
denominates certain international sales in local currencies, primarily in Europe
and Japan. As a result, the Company is subject to the risks associated with
fluctuations in currency exchange rates. The Company does not currently engage
in hedging transactions and there can be no assurance that it will not incur
significant losses related to currency fluctuations. Other risks inherent in the
Company's international sales include longer payment cycles, unexpected changes
in regulatory requirements, seasonality due to the slowdown in European business
activity during the third quarter, and tariffs and other trade barriers. There
can be no assurance that these factors will not have a material adverse effect
on the Company's future business, financial condition and results of operations.

Cost of Revenues. Cost of revenues increased 21% from $12.0 million for the
year ended December 31, 1996 to $14.5 million for the same period in 1997. Cost
of revenues consists primarily of the cost of product media, product
duplication, documentation, order fulfillment and royalties. The increase in
cost of revenues was due primarily to increased unit shipments of the Company's
products.

16
<PAGE> 18

Gross Margin. For the years ended December 31, 1996 and 1997, gross margins
were 69% and 80%, respectively. Gross margins in 1997 were positively affected
by a decrease in the percentage of net revenues represented by direct sales
during the period; such direct sales typically generate a lower gross margin
than sales through distributors. Gross margins also increased during 1997 due to
a reduction in the net deferrals of revenue associated with post sale
obligations to customers. This reduction in the net deferrals resulted both from
the change in the Company's product mix in 1997 to products with less demand for
post-sale customer support and therefore lower deferral rates, and from the
effect of increasing amounts of previously deferred revenue related to the
general increase in sales over the past years being amortized into net revenue
in 1997.

Research and Development. Research and development expenses increased 183%
from $3.3 million for the year ended December 31, 1996 to $9.3 million for the
same period in 1997, representing 9% and 13% of revenue, respectively. Research
and development expenses consist primarily of personnel costs and, to a lesser
extent, payment to third parties for contract services required to conduct the
Company's development efforts. The increase in research and development expenses
was primarily attributable to an increase in personnel as the Company increased
its product development efforts to support new product introductions and
upgrades. The Company believes that significant investments in product
development are required to remain competitive. As a consequence, the Company
anticipates that it will continue to devote substantial resources to research
and development.

Sales and Marketing. Sales and marketing expenses increased 64% from $24.1
million for the year ended December 31, 1996 to $39.5 million for the same
period in 1997, representing 63% and 55% of net revenues, respectively. Sales
and marketing expenses consist primarily of costs of all sales and marketing
personnel, sales commissions, co-op and other advertising costs, postage and
printing costs associated with direct mail sales, package design costs, trade
show costs and costs of preparing promotional materials. The increases in the
dollar amount of sales and marketing were due primarily to increases in co-op
advertising, increases in the number of sales and marketing personnel employed
to address new sales opportunities and support the introduction of new products,
and expansion of international sales and marketing efforts. The Company expects
that sales and marketing expenditures will increase in absolute dollars as it
invests in expanding its third-party distribution channels, introduces new
products such as CSS and expands its operations outside the United States.

General and Administrative. General and administrative expenses increased
136% from $2.9 million for the year ended December 31, 1996 to $6.9 million for
the same period in 1997, representing 8% and 10% of net revenues, respectively.
General and administrative expenses consist primarily of personnel costs for
finance, administration, operations and general management, as well as legal,
accounting and facilities expenses. The increase in general and administrative
expenses was due principally to growth in the infrastructure of the Company's
finance, administrative and operations groups in order to support the Company's
expanded operations. The Company expects that its general and administrative
expenses will increase in absolute dollars in the future as it expands its
staffing, information systems and infrastructure.

One-Time In-Process Research and Development and Acquisition Expenses. In
April 1997 the Company acquired certain assets from Luckman Interactive, Inc.
which included ownership in all intellectual property rights to MicroHelp
UnInstaller, for approximately $9.0 million. This acquisition was accounted for
largely as in-process research and development and was expensed during the
quarter ended June 30, 1997. On September 30, 1997, the Company acquired certain
rights from ServiceWare Inc. for $2.4 million which included access and resale
rights to certain ServiceWare Inc. technology for use in future products. This
technology was considered to have no alternative future use and was expensed
during the quarter ended September 30, 1997 as one-time in-process research and
development and acquisition expense.

Other Income. For the years ended December 31, 1996 and 1997, other income
(expense) was $351,000 and $1.2 million, respectively. Other income (expense)
consists of interest income, interest expense and currency related losses and
gains.

The increase in 1997 was due largely to interest income earned on a larger
invested balance of cash equivalents and marketable securities.

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Provision for Income Taxes. The provision for income taxes includes
estimated foreign taxes attributable to international activities during the year
ended December 31, 1997 as well as US federal and state taxes. Due to
significant timing differences associated with expenses recognized for financial
statement purposes but not yet allowed for tax purposes, the Company will be
required to pay certain federal, state and foreign income taxes for 1997. To the
extent that such tax payments are not recoverable through carryback provisions
and it is not more likely than not that such payments will result in a tax
benefit in future periods, the Company expensed tax payments made or to be made
for 1997. The Company had federal and state net operating loss carry-forwards of
approximately $3.1 million at December 31, 1997. These loss carry-forwards
expire at various dates beginning in the year 2006 and are subject to certain
limitations as prescribed by Section 382 of the Internal Revenue Code of 1986,
as amended.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

Net Revenues. Net revenues were $4.8 million and $38.5 million in 1995 and
1996, respectively, representing a $33.7 million increase for 1996 over 1995.
The majority of the Company's net revenues have been derived from domestic sales
in the United States, with international sales representing approximately 10% in
1996 and less than 5% of net revenues in 1995. The growth in net revenues in
1996 was largely attributable to increased market acceptance of First Aid 95,
the introduction of First Aid 95 Deluxe in March 1996 and the introduction of
First Aid 97 in November 1996. In addition, introduction of Oil Change and
localized German, French and British versions of First Aid during the second
half of 1996 contributed to revenue growth.

Cost of Revenues. Cost of revenues were $2.1 million and $12.0 million in
1995 and 1996, respectively, representing a $9.9 million increase in 1996. Total
royalty expenses were less than 5% of net revenues in each of these periods. The
increase in cost of revenues was due primarily to increased unit shipments of
the Company's products.

Gross Margin. For the years ended December 31, 1995 and 1996, gross margins
were 56% and 69% respectively. Gross margins in 1996 were positively affected by
a decrease in the percentage of net revenues represented by direct sales, which
generated a lower gross margin than sales through distributors during the
period.

Research and Development. Research and development expenses increased by
242% from $964,000 in 1995 to $3.3 million in 1996, representing 20% and 9% of
net revenues in these years, respectively. The increase in research and
development expenses in this period was primarily attributable to an increase in
personnel as the Company increased its product development efforts to accelerate
the timing of new product introductions and upgrades.

Sales and Marketing. Sales and marketing expenses increased 503% from $4.0
million in 1995 to $24.1 million in 1996, representing 84% and 63% of net
revenues in these years, respectively. The increase in the dollar amount of
sales and marketing expenses in this period was due primarily to increases in
direct mail marketing, costs associated with new product introductions,
increased co-op advertising and increases in the number of sales and marketing
personnel employed to address new sales opportunities and to support the
introduction of new products.

General and Administrative. General and administrative expenses increased
198% from $1.0 million in 1995 to $2.9 million in 1996, representing 21% and 8%
of net revenues in these years, respectively. The increase in the dollar amount
of general and administrative expenses during this period was due principally to
growth in the infrastructure of the Company's finance, administrative and
operations groups in order to support the Company's expanded operations. The
decrease in general and administrative expenses as a percentage of net revenues
during this period was due primarily to the growth in net revenues.

Other Income (Expense), Net. Other income (expense), net was ($58,000) and
$351,000 in 1995 and 1996, respectively. Other income (expense) consisted
primarily of interest income and interest expense. The increase in interest
income during the year ended December 31, 1996 resulted from the cash balances
arising after the Company's initial public offering.

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Income Tax Expense. Due to the losses before income taxes for the years
ended December 31, 1995 and 1996, the Company recorded minimum state franchise
tax. The Company had federal net operating loss carry-forwards of approximately
$3.1 million in 1996 to offset future taxable income. These loss carry-forwards
expire at various dates beginning in the year 2006 and are subject to certain
limitations as prescribed by Section 382 of the Internal Revenue Code of 1986,
as amended.

LIQUIDITY AND CAPITAL RESOURCES

Initially, the Company financed its operations primarily through private
sales of Preferred Stock totaling $10.5 million and a grant of $318,000
administered by the Industrial Credit and Investment Corporation of India.
Furthermore, in October 1996, the Company completed an initial public offering
of 2,875,000 shares of Common Stock (including the underwriters' over-allotment
of 375,000 shares) at $16.00 per share. Net proceeds to the Company from the
initial public offering were approximately $41.5 million. In 1996 and 1997, the
Company used $8.3 million and $12.6 million of cash, respectively, in operating
activities. During these periods, the Company used net cash in operating
activities principally to support increases in accounts receivable and inventory
associated with increased net revenues; such use was partially offset by
increases in accounts payable, accrued expenses, income taxes and unearned
revenues.

In 1996 and 1997, the Company's capital spending activities consisted of
purchases of furniture, fixtures and equipment, primarily PCs and accessories in
the amount of $1.0 million and $3.9 million, respectively. Also in 1997, the
Company invested net amounts of $1.0 million in marketable securities and
$393,000 in trademarks and other assets in connection with acquisitions of
in-process research and development. The Company expects that its capital
expenditures will increase as the Company's employee base continues to grow. At
December 31, 1996 and 1997, the Company had no material commitments for capital
expenditures.

At December 31, 1997, the Company had $26.0 million in cash, cash
equivalents and marketable securities and $33.6 million in working capital. At
December 31, 1997, the Company had commitments for cash outlays of approximately
$4.0 million associated with the acquisition of MicroHelp UnInstaller and
technology from ServiceWare Inc. payable over the next two years. Subsequent to
December 31, 1997, approximately $600,000 of this obligation has been paid. The
Company believes that its current cash and investment balances, cash available
under its line of credit and cash flows from operations, if any, will be
sufficient to meet these needs. The Company also has available a $1.0 million
unsecured revolving line of credit which expires in May 1998. In addition, the
Company has, from time to time, utilized accounts receivable based financing
made available by commercial banks including sales of trade accounts receivable
to such commercial banks. Such arrangements are non-recourse, except for sales
returns and marketing credits. In 1997, the Company sold $4.8 million of trade
accounts receivable without recourse (subject to sales returns and marketing
credits) of which $552,000 remained outstanding at December 31, 1997 which
amount was satisfied in full subsequent to year-end.

The Company believes that its current cash and investment balances and cash
flows from operations, if any, will be sufficient to meet its working capital
and capital expenditure requirements for at least the next 12 months.

To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk.
Management expects that in the future cash in excess of current requirements
will be invested in short-term, interest-bearing, investment grade securities.

The Company recognizes that some of its internal computer systems and
programs have not yet been certified by supplying vendors as being Year 2000
compliant. In 1998, the Company intends to appoint a Year 2000 compliance
committee to determine the extent to which it is vulnerable to such date
truncation problems. There can be no guarantee that the systems of the Company's
suppliers, distributors and others upon which the Company's systems and/or
personnel rely will be timely converted, or that a failure to convert or an
incompatible conversion by one of these parties would not have a material
adverse effect on the Company.

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<PAGE> 21

New releases of the Company's software have been designed to address
processing for the year 2000 to the extent it has been required. It is the
Company's intent to have all of its actively supported software users on
releases of its software which are ready for the year 2000 by the end of 1999.
However, to the extent that others such as system integrators make use of the
Company's software in developing solutions for third parties, the Company may
have no knowledge as to the year 2000 readiness of those third party products.
In addition, it is possible third parties could assert claims against the
Company or its customers concerning year 2000 issues and, regardless of their
merits or lack thereof, these claims could be material.

The Company does not yet have an estimate of the costs associated with Year
2000 compliance work.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In October 1997, the American Institute of Certified Public Accountants
("AICPA") released Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). Among other things, SOP 97-2 eliminates the distinction between
significant and insignificant vendor obligations promulgated by SOP 91-1 and
requires each element of a software arrangement to meet certain criteria in
order to recognize revenue allocated to that element. Additionally, SOP 97-2
requires that total fees under an arrangement be allocated to each element in
the arrangement based upon vendor specific objective evidence, as defined. SOP
97-2 is effective for software transactions entered into by the Company in
fiscal 1998 and subsequent periods.

As a result of certain issues raised in applying SOP 97-2, the AICPA issued
a Statement of Position which will delay for one year the effective date of
certain provisions of SOP 97-2 with respect to what constitutes vendor-specific
objective evidence of fair value of the delivered software element in certain
multiple-element arrangements that include service elements entered into by
entities that never sell the software elements separately. The Company does not
anticipate that the adoption of SOP 97-2 and the new SOP will have a material
effect on the Company's results of operations. However, the ultimate resolution
of the implementation issues referred to above, or additional issues not yet
raised or addressed by the AICPA, could change the Company's expectation.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Limited Operating History and History of Operating Losses. The Company has
only a limited operating history upon which to base an evaluation of its
business and prospects. The Company commenced operations in November 1991 and
introduced its first automatic service and support product, Win Win, in 1993.
The Company introduced the first Windows compatible version of its ActiveHelp
product line in September 1995. From inception to December 31, 1997, the Company
generated net revenues of approximately $114.8 million, of which $109.8 million,
or 96% of such amount, was generated in 1996 and 1997. The Company has incurred
net losses in each of the last seven fiscal years, resulting in an accumulated
deficit of $20.8 million at December 31, 1997. In addition, since 1992, the
Company's operating expenses have increased significantly as a result of efforts
to expand its sales and marketing operations, including international sales, to
fund greater levels of product development and to increase its administrative
infrastructure. The Company's net revenues in 1997 increased 85% over the net
revenues for the same period in 1996. This increase was attributable, in part,
to sales of software products the rights to which the Company acquired through
acquisitions in 1997. There can be no assurance that the Company's net revenues
will continue to remain at or increase from the level experienced in 1997 or
that net revenues will not decline. The Company anticipates that in the future
it will make significant investments in its operations, particularly to support
sales activities, and that as a result, operating expenses will increase
significantly as the Company develops and introduces new products and expands
into new markets such as international, enterprise and OEM. If net revenues do
not increase correspondingly, the Company is likely to continue to incur net
losses and its financial condition will be materially adversely affected. The
Company has not yet achieved profitability on an annual basis, and there can be
no assurance that the Company will achieve or sustain profitability on a
quarterly basis or annual basis. Furthermore, operating results for future
periods are subject to numerous uncertainties. The Company's prospects must be
considered in light of the risks encountered by companies with limited operating
histories, particularly companies in new and rapidly evolving markets. While the
Company believes that it has sufficient cash resources to meet its obligations
for the next twelve months, no assurance exists that current cash and
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<PAGE> 22

cash equivalent balances, and cash from operations and existing credit lines
will be sufficient to fund future operations of the Company or that outside
sources of funds will be available when and if such funds are needed. In
addition, the Company's future operating results will depend upon, among other
factors, the demand for the Company's software products, the level of product
and price competition, the Company's success in expanding its direct and
indirect distribution channels, the Company's success in attracting and
retaining motivated and qualified personnel, the ability of the Company to
expand its international sales, develop and market new products and product
upgrades and manage product transitions, the ability of the Company to control
costs, the growth of activity on the Internet and the World Wide Web (the
"Web"), and general economic conditions. Many of these factors are beyond the
Company's control. If the Company is not successful in addressing such risks,
the Company's business, results of operations and financial condition will be
materially adversely affected.

Risk of Product Returns. The Company's business includes a substantial risk
of product returns from distributors, retailers and end users, either through
the exercise of contractual return rights or as a result of the Company's policy
of assisting customers in balancing and updating inventories. Individual end
users may return products within 60 days of the date of purchase for a full
refund. Most retailers, distributors and end users also have the ability to
return products for a full refund. The rate of product returns may increase
because of a variety of factors, including competitors' promotional or other
activities, an increase in the proportion of the Company's business attributable
to mass merchandisers, overstocking by the Company's distributors or retailers
due to unrealized demand for new products, or a decline in the demand for the
Company's products as compared to historical levels. As the Company introduces
new products and enters new markets where the Company has had limited
experience, the risk of product returns may increase. In particular, the Company
has recently introduced First Aid 98, a major upgrade of First Aid 97, and Guard
Dog Deluxe, a first-time product release. In addition, in the event the
Company's packaging is claimed to infringe on intellectual property rights of
third parties, the Company could be required to recall its distributed products
for repackaging or to cease shipping product in its current packaging, which
could materially adversely affect the business, results of operations, and
financial condition of the Company. In particular the Company has agreed to
change the packaging of its UnInstaller product following February 1998. To the
extent this product is returned after February 1998, such products may not be
resold.

Although the Company establishes reserves based on estimated future returns
of products, taking into account the timing of new product introductions,
promotional activities, distributor and retailer inventories of the Company's
products and other factors, there can be no assurance that actual levels of
returns will not significantly exceed amounts anticipated by the Company. There
can be no assurance that the level of returns will not significantly increase in
the future. Particularly in light of recent new product introductions, any
material increase in the level of returns could materially adversely affect the
Company's business, results of operations and financial condition.

Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate
significantly in the future. These fluctuations may arise as a result of a
number of factors, including the number and timing of new product introductions,
upgrades and product enhancements by the Company or its competitors, purchasing
patterns of distributors and customers,

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<PAGE> 23

marketing and promotional programs, pricing and other competitive pressures,
order deferrals and product returns in anticipation of new products or upgrades
to existing products, the mix of distribution channels through which the
Company's products are sold, the Company's decisions regarding hiring and other
expenses, market acceptance of the Company's products, market acceptance of
commerce over the Internet, technological limitations of the Internet, the
developing nature of the market for the Company's products, general economic
conditions and other factors. The Company generally ships products as orders are
received and, accordingly, the Company has historically operated with relatively
little backlog. As a result, quarterly revenues depend predominantly on the
volume and timing of orders received during a particular quarter, both of which
are difficult to forecast.In fact, the Company typically generates a large
percentage of its quarterly revenues during the last few weeks of the quarter. A
significant portion of the Company's operating expenses are relatively fixed in
the short term, and planned expenditures are based on sales forecasts. To the
extent that such expenses precede or are not subsequently followed by increased
net revenues, the Company's business, results of operations and financial
condition will be materially adversely affected. In addition, the consumer
software industry in which the Company operates has seasonal elements. In recent
years, the consumer software industry has experienced relatively lower demand
for software products in the summer months. If net revenues fall below the
Company's expectations, expenditure levels as a percentage of total net revenues
could be disproportionately high, and operating results would be immediately and
adversely affected. The Company believes that period-to-period comparisons of
its operating results are not meaningful and should not be relied upon as any
indication of future performance. Due to the foregoing factors, among others, it
is likely that the Company's future quarterly operating results from time to
time will not meet the expectations of securities analysts or investors, which
may have an adverse effect on the price of the Company's Common Stock.

Management of Growth; Dependence on Key Personnel. The Company's business
has grown rapidly in recent years and such growth has placed and, if sustained,
will continue to place, significant demands on the Company's management and
resources. Recently, the Company has significantly increased the scale of its
operations to support increased sales volumes and to address critical
infrastructure and other requirements. This increase included substantial
investments in sales and marketing to support sales activities and the hiring of
a number of new employees, which have resulted in higher operating expenses.
Between December 31, 1995 and December 31, 1997, the number of Company employees
increased from approximately 20 to approximately 257. Subsequent to December 31,
1997, the Company's Chief Executive Officer and Chief Financial Officer
resigned. The Company is currently engaged in a search for replacements for
these positions. The Company's ability to manage the business and bear the costs
of future expansion, should it occur, will depend upon the Company's ability to
recruit and retain a new Chief Executive Officer and a new Chief Financial
Officer as well as the successful expansion of its sales, marketing, research
and development, customer support and administrative infrastructure and the
ongoing implementation and improvement of a variety of internal management
systems, procedures and controls. There can be no assurance that the Company
will be able to attract, manage and retain personnel or will not experience
significant problems with respect to any infrastructure expansion or the
attempted implementation of systems, procedures and controls. Any failure in one
or more of these areas would have a material adverse effect on the Company's
business, results of operations and financial condition.

The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical personnel including senior
engineering professionals. Competition for such personnel is intense and there
can be no assurance that the Company will be able to retain its key technical
employees or that it will be able to attract and retain additional highly
qualified technical personnel in the future. Any inability to attract and retain
the necessary technical personnel could have a material adverse effect on the
Company's business, results of operations and financial condition.

The Company is dependent upon certain of its executive officers and has
entered into employment agreements with certain of its executive officers in
order to help assure their retention by the Company. However, there can be no
assurance that any such employment agreements will sufficiently incent such
executive officers to remain with the Company. The Company does not maintain any
key person insurance policies on the lives of any of its executive officers. The
loss of or inability to retain these key executive officers

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for any reason could have a material adverse effect upon the Company's business,
results of operations and financial condition.

Product Concentration; Risks Associated with Upgrades and New
Products. During 1996 and 1997, over 90% and over 75%, respectively, of the
Company's net revenues were attributable to sales of its First Aid products.
Although the Company anticipates that sales of its First Aid products will
account for a substantial portion of its net revenues in the future, the Company
believes that sales of its new products, such as Oil Change, UnInstaller, Guard
Dog Deluxe, and CSS also will contribute significantly. There can be no
assurance that net revenues from the Company's products will continue to grow at
historical rates or sustain current levels. The Company's future financial
performance will depend in large part on the successful development,
introduction and customer acceptance of UnInstaller, Guard Dog Deluxe, Oil
Change, and other new product offerings and enhanced versions of Company
products including CyberMedia Support Server, the Company's enterprise product
line. A decline in the demand for First Aid or other ActiveHelp products,
failure to achieve market acceptance of upgrades to such products or new
products or failure of net revenues derived from such products to meet the
Company's expectations, whether as a result of competition, technological change
or other factors, would have a material adverse effect on the Company's
business, results of operations and financial condition.

Competition. The PC software industry is intensely competitive and
characterized by short product life cycles and frequent new product
introductions. The Company competes with software companies of varying sizes and
resources, including Network Associates, Inc., Symantec Corp., Quarterdeck
Corporation, SystemSoft Corporation and others. Furthermore, the Company may
compete with other companies that introduce automatic service and support,
security and anti-virus protection software products. Many of the Company's
existing and potential competitors have substantially greater financial,
technical and marketing resources than the Company. Moreover, there are no
proprietary barriers to entry that could keep existing and potential competitors
from developing similar products or selling competing products in the Company's
markets. To the extent that the Company's competitors bundle their software
products with leading hardware, application software or operating system
vendors, or if one or more of the system vendors, such as Microsoft, IBM, Intel
or others, succeeds in incorporating functionality comparable, or perceived as
comparable, to that offered by the Company into its products, (or separately
offers comparable products), the Company's business, results of operations and
financial condition could be materially adversely affected. There can be no
assurance that the Company will be able to compete successfully with existing or
potential competitors. In particular, Microsoft's "Zero Administration for
Windows" initiative is a collection of technologies from Microsoft that make the
Windows family of systems easier to use for the end user and easier to manage
for IS administrators. There can be no assurance that any such initiative by
Microsoft or others would not render the Company's products uncompetitive or
obsolete. Furthermore, there can be no assurance that other software companies
with longer operating histories, significantly greater financial, technical,
marketing or other resources, significantly greater name recognition or a larger
installed base of customers than the Company will not introduce products
comparable, or perceived as comparable, to those of the Company. Increased
competition may result in the loss of shelf space or a reduction in demand or
sell-through of the Company's products, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

The Company also expects that competition will increase as a result of
software industry consolidations. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products to address the
needs of the Company's prospective customers. Accordingly, it is possible that
current and potential competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company provides price
protection to its distributors in the event the Company reduces its prices.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially and adversely affect its business, financial
condition and results of operations.

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The enterprise software market targeted by the CyberMedia Support Server
product line is expected to be subject to intense competition from a number of
sources including solutions currently being utilized by IS administrators. There
can be no assurance that the Company's product line will gain acceptance in the
enterprise market or that, if accepted, competitors with longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than the Company will not introduce products comparable, or perceived
as comparable, to those of the Company.

Dependence on Distribution Channels. The Company currently sells its
products primarily through distributors for resale to the retail channel. Sales
to such distributors accounted for approximately 69% and 65% of the Company's
net revenues in 1996 and 1997, respectively.

Sales to a limited number of distributors have constituted and are expected
to continue to constitute a substantial portion of the Company's net revenues.
Net sales to the Company's top two distributors, Ingram Micro Inc. ("Ingram
Micro") and Navarre Corporation ("Navarre"), accounted for approximately 25% and
25%, respectively, of net revenues in 1996 and 1997. The loss of, or reduction
in, orders from any of these distributors could have a material adverse effect
on the Company's business, results of operations and financial condition.
Historically, margins for distributors in the PC software industry have been
low, competition has been intense and distributors have relied on timely
payments from their customers. Financial difficulties of any distributors could
render the Company's associated accounts receivable uncollectible, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, any special distribution arrangements or
product pricing arrangements that the Company may implement for strategic
purposes in one or more of its distribution channels could materially adversely
affect its margins.

The distribution channels through which consumer software products are sold
have been characterized by rapid change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. In addition, due to an increase in
the number of software applications, there are an increasing number of companies
competing for access to these channels. Retailers of the Company's products
typically have a limited amount of shelf space and promotional resources, and
there is intense competition for high quality and adequate levels of shelf space
and promotional support from the retailers. The Company believes this
competition for shelf space will increase in the near term as competitors
introduce new automatic service and support software. The competition for access
to distribution channels also, from time to time, results in the Company
offering extended payment terms and other incentives to its distribution
partners to maintain adequate shelf space for its products. There can be no
assurance that distributors and retailers will continue to purchase the
Company's products or provide the Company's products with adequate levels of
shelf space and promotional support, the lack of which would have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company has entered into, and seeks to continue to establish,
strategic alliances with third-party vendors to increase the distribution of its
automatic service and support products. To date none of these agreements or
strategic alliances has generated significant revenues and there can be no
assurance that any of these agreements or strategic alliances will be a material
source of revenues for the Company. In addition, there can be no assurance that
these agreements and alliances will not be amended or terminated prior to their
expiration because of changed commercial conditions or otherwise.

Dependence on Microsoft Windows and Windows NT. The Company's success is
dependent on the continued widespread use of the Windows and Windows NT
operating systems for PCs. The Company's ActiveHelp products are designed to
automatically detect, diagnose, resolve and help prevent common

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problems in the Windows and Windows NT environments. Although Windows operating
systems are currently used by many PC users, other companies, including
International Business Machines Corporation, Apple Computer, Inc. and Sun
Microsystems, Inc., have developed or are developing other operating systems
that compete, or will compete, with Windows. In the event that any of these
alternative operating systems become widely accepted in the PC marketplace,
demand for the Company's products could be adversely affected, thereby
materially adversely affecting the Company's business, results of operations and
financial condition. In addition, Microsoft may introduce new operating systems
to replace Windows or Windows NT or could incorporate some or many of the key
features of the Company's products in new versions of its operating systems,
thereby eliminating the need for users to purchase the Company's products.
Specifically, the Company expects Microsoft to release Windows '98 in calendar
1998. To the extent that the Company's products are not compatible with Windows
'98, the Company may need to significantly update its products. In addition, the
Company may experience significant returns. The inability to adapt current
products or to develop new products for use with any new operating systems on a
timely basis would have a material adverse effect on the Company's business,
results of operations and financial condition.

In addition, the Company's ability to develop products based on Windows and
Windows NT operating systems and release these products immediately prior to, or
at the time of Microsoft's release of new and upgraded Windows and Windows NT
products is substantially dependent on its ability to gain pre-release access
to, and to develop expertise in, current and future versions of Windows and
Windows NT. There can be no assurance that the Company will be able to provide
products that are compatible with future Windows and Windows NT releases on a
timely basis, with or without the cooperation of Microsoft.

Developing Market. The Company's products address the new and rapidly
evolving market for automatic service and support including Internet privacy and
security software products. The market for such products has only recently begun
to develop and is characterized by an increasing number of existing and
potential market entrants who have introduced or are in the process of
introducing or developing automatic service and support software products. As is
typical in the case of a new and rapidly evolving market, the demand and market
acceptance for recently introduced products are subject to a high level of
uncertainty and risk. It is difficult to predict the future growth rate and size
of this market. There can be no assurance that the market for the Company's
products will develop, that demand for the Company's products or for automatic
service and support and Internet privacy and security software products in
general will increase or that the rate of growth of this demand will be
sustainable or will not decrease. The Company's ability to develop and
successfully market additional products depends substantially on the acceptance
of automatic service and support products by individual and corporate users as
an effective means of addressing their technical support requirements and the
acceptance of Internet privacy and security software as an effective means of
protecting their critical and sensitive information. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's products do not achieve or sustain market
acceptance, the Company's business, results of operations and financial
condition will be materially adversely affected.

New Product Development and Technological Change. Substantially all of the
Company's net revenues have been derived, and substantially all of the Company's
future net revenues are expected to be derived, from the sale of its automatic
service and support products. The market for such products is characterized by
rapid technological advances, evolving industry standards in computer hardware
and software technology and frequent new product introductions and enhancements.
The Company's products must be continually updated to address the new and
evolving technical support requirements of third-party hardware and software.
Failure to anticipate technical difficulties that arise from use of these
third-party products and incorporate solutions to such difficulties into the
Company's products would have a material adverse effect on continued market
acceptance of the Company's products. The Company's ability to design, develop,
test and support on a timely basis new software products, updates and
enhancements that respond to technological developments and emerging industry
standards in the Company's current market as well as new markets such as the
enterprise market is critical to the Company's future success. There can be no
assurance that the Company will be successful in such efforts or that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products and
enhancements, or that its new

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products, upgrades and enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. The introduction of new products,
upgrades or enhanced versions of existing products is subject to the risk of
development delays due to resource constraints, availability of technical
employees, technological change and other reasons. In addition, the Company may
encounter difficulties or delays in developing products for the enterprise
market for which the technical and functional requirements for products are
different from and are often more complex than those in the retail market. If
the Company is unable to develop on a timely basis new software products,
upgrades or enhancements to existing products or if such new products, upgrades
or enhancements do not achieve market acceptance, the Company's business,
results of operations and financial condition would be materially adversely
affected.

The Company supplements its in-house product development by engaging
work-for-hire software engineers in India. In addition, the Company from time to
time engages other software engineers on a contract basis. Any loss of the
services of these engineers due to political or economic instability or for any
other reason could adversely affect the Company's product development efforts
and thereby could materially adversely affect the Company's business, results of
operations and financial condition.

Dependence on the Internet. The commercial viability of the Company's
products and the Company's ability to execute its strategy to leverage the
Internet as a platform for its products and services are dependent upon the
continued development and acceptance of the Internet. In addition, the Company's
future success may be dependent upon continued growth in the use of the Internet
in order to support the distribution of products and future upgrades. The use of
the Internet as a distribution channel is new and unproven and represents a
significant departure from traditional distribution methods employed by software
companies. Critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use, accessibility, speed and
potential tax or other government regulation) remain unresolved and may affect
the use of the Internet as a medium to support the functionality of the
Company's products as well as to distribute software. There can be no assurance
that the use of the Internet will be effective for either current or future
products. The failure of the development and acceptance of the Internet would
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company's future success depends, in part, upon the
future growth of the Internet for commercial transactions. There can be no
assurance that communication or commerce over the Internet will become
widespread and it is not known whether this market will develop to the extent
necessary for demand for the Company's products to emerge and become
sustainable. The Internet may not prove to be a viable commercial marketplace
for a number of reasons, including inadequate bandwidth and a lack of secure
payment mechanisms. To the extent that the Internet continues to experience
significant growth in the number of users and level of use, there can be no
assurance that the Internet infrastructure will continue to be able to support
the demands placed upon it. Moreover, the Internet could lose its viability due
to delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet activity or due to increased government
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times
which might adversely affect customers' ability or willingness to access or
purchase the Company's products or upgrades over the Internet. In addition, the
security and privacy concerns of existing and potential customers, as well as
concerns related to computer viruses, may inhibit the growth of the Internet
marketplace generally and the customer base for the Company's products in
particular. If use of the Internet does not continue to grow, if the Internet
infrastructure does not effectively support customer demand or if hardware and
software vendors do not continue to post updates and patches on the Internet,
the Company's business, results of operations and financial condition could be
materially adversely affected.

Limited Protection of Proprietary Rights. The Company's success is heavily
dependent upon its proprietary software. The Company relies primarily on a
combination of copyright, trademark and trade secret laws, employee
confidentiality and nondisclosure agreements and third-party nondisclosure
agreements and other methods of protection common in the consumer software
industry to protect its proprietary rights. The Company licenses its products
primarily under "shrink wrap" license agreements that are not signed by
licensees and therefore may be unenforceable under the laws of certain
jurisdictions. In addition, the Company has two United States patent
applications pending and intends to seek international and further United States
patents on its technology. There can be no assurance that patents will issue
from the Company's pending

26
<PAGE> 28

applications or that any claims allowed from the pending patent applications or
those hereafter filed will be of sufficient scope or strength, or be issued in
all countries where the Company's products can be sold, to provide meaningful
protection or any commercial advantage to the Company or that any patents which
may be issued to the Company will not be challenged and invalidated. Although
from time to time the Company obtains copyright registrations on certain items
of its technology, existing copyright laws provide only limited protection.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use the Company's products
or technology that the Company considers proprietary, and third parties may
develop similar technology independently. Furthermore, there can be no assurance
that others will not infringe the Company's intellectual property rights.
Policing unauthorized use of the Company's intellectual property rights and
products is difficult. While the Company is unable to determine the extent to
which piracy of its software products exists, software piracy can be expected to
be a persistent problem. There can be no assurance that the Company can
meaningfully protect its intellectual property rights. A failure by the Company
to meaningfully protect its intellectual property rights could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company also relies, in part, on technology licenses from third
parties. In the event that such licensees are terminated, the Company would need
to license similar technology from alternative sources or develop its own
technology. In the event the Company could not license such similar technology
on commercially viable terms or otherwise successfully develop its own
technology, the Company's business, results of operation and financial condition
could be materially adversely affected. In addition, there can be no assurance
that the Company's competitors will not independently develop technologies and
products that are substantially equivalent or superior to those of the Company
without violating the Company's proprietary rights, the commercialization of
which could have a material adverse effect on the Company's business, results of
operations and financial condition.

System Interruption and Security Risks. The Company's ability to provide
product functionality through the Internet is dependent on its ability to
protect its system from interruption, whether by damage from fire, earthquake,
power loss, telecommunications failure, unauthorized entry or other events
beyond the Company's control. Most of the Company's computer equipment,
including its processing equipment, is currently located at a single site. While
the Company believes that its existing and planned precautions of redundant
systems, regular data backups and other procedures are adequate to prevent any
significant system outage or data loss, there can be no assurance that
unanticipated problems will not cause such a failure or loss. Despite the
implementation of security measures, the Company's infrastructure may also be
vulnerable to computer viruses, hackers or similar disruptive problems caused by
its customers, employees or other Internet users. Any damage or failure that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial condition.
Computer break-ins and other

27
<PAGE> 29

disruptions could jeopardize the security of information stored in and
transmitted through the computer systems of the individuals and businesses
utilizing the Company's products, which could result in significant liability to
the Company and also may deter customers and potential customers from using the
Company's services. Persistent problems continue to affect public and private
data networks. For example, in a number of networks, hackers have bypassed
network security and misappropriated confidential information.

Volatility of Stock Price. The market price of the shares of Common Stock
is likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as actual or anticipated variations in the Company's
operating results, announcements of technological innovations, new products or
new contracts by the Company or its competitors, third party product reviews or
awards on the Company's or its competitors' products, developments with respect
to patents, copyrights or proprietary rights, changes in financial estimates by
securities analysts, conditions and trends in the software and other technology
industries, adoption of new accounting standards affecting the software
industry, general market conditions and other factors. Further, the stock market
has experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies and that often have been unrelated or disproportionate to the
operating performance of such companies. Declines in market prices generally may
adversely affect the market price of the Company's Common Stock. The Company has
been named as a defendant in class action litigation which could result in
substantial costs and a diversion of management attention and resources, which
would have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that additional
actions will not be brought against the Company. In addition, the Company is
aware that on March 18, 1998, plaintiffs Mark Novisoff, Timothy O'Pry, Janet Van
Pelt and Thomas Lynch (collectively, the "Amending Plaintiffs") filed a motion
for leave to file an amended complaint for the purpose of, inter alia, adding
the Company as a defendant to a lawsuit the Amending Plaintiffs filed on March
2, 1998 in Los Angeles Superior Court against Luckman Interactive, Inc. The
Company is not currently a party to this lawsuit. The motion is scheduled for a
hearing on April 22, 1998. There can be no assurance that the court will not
permit such amended complaint to be filed. These market fluctuations, as well as
general economic, political and market conditions, such as recessions or
international currency fluctuations, may adversely affect the market price of
the Common Stock.

Product Liability. The Company's software products may contain errors or
failures. There can be no assurance that, despite testing by the Company and
testing and use by current and potential customers, errors will not be found in
products after commencement of commercial shipments. The occurrence of any such
errors could result in the loss of, or a delay in, market acceptance of the
Company's products, which would have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's license
agreements with its customers typically contain provisions designed to limit the
Company's exposure to potential claims for damages. It is possible, however,
that the limitation of liability provisions contained in the Company's license
agreements may not be effective under the laws of certain jurisdictions.
Although the Company has not experienced any such claims to date, the sale and
support of the Company's products may entail the risk of such claims. While the
Company has obtained insurance against product liability risks, there can be no
assurance that such insurance will provide adequate coverage. The Company does
not currently carry errors and omissions coverage which may protect against
allegations that the Company's products have failed to perform adequately. Any
such claims for damages brought against the Company could have a material
adverse effect on the Company's business, results of operations and financial
condition.

Risks Associated with Recent Acquisitions; Potential Future
Acquisitions. In April 1997, the Company acquired certain assets of Luckman
Interactive, Inc. and acquired Walk Softly, Inc. The integration of acquired
assets, groups and product lines is typically difficult, time consuming and
subject to a number of inherent risks. The integration of product lines requires
the coordination of the research and development and sales and marketing efforts
of the acquired groups and the Company. Such combinations have and will continue
to require substantial attention from management. The diversion of the attention
of management and any difficulties encountered in the transition process could
have a material adverse impact on the Company's business, financial condition
and results of operations. In addition, the process of assimilating and managing
acquisitions could cause the interruption of, or a loss of momentum in, the
activities of the Company's

28
<PAGE> 30

business, which could have a material adverse effect on the Company. There can
be no assurance that the Company will realize the anticipated benefits of any of
these acquisitions.

Future acquisitions by the Company may result in the diversion of
management's attention from the day-to-day operations of the Company's business
and may include numerous other risks, including difficulties in the integration
of the operations, products and personnel of the acquired companies. Future
acquisitions by the Company also have the potential to result in dilutive
issuances of equity securities, the incurrence of debt and amortization expenses
related to goodwill and other intangible assets. While there are currently no
such acquisitions planned or being negotiated, Company management frequently
evaluates the strategic opportunities available to it and may in the near- or
long-term pursue acquisitions of complementary businesses, products or
technologies.

Risks Associated With Global Operations. During 1997, approximately 17% of
total net revenues were from sales to customers outside of the United States.
The Company is expanding its sales operations outside of the United States which
will require significant management attention and financial resources. The
Company's ability to expand its product sales internationally is dependent on
the successful development of localized versions of the Company's products,
establishment of distribution channels, acceptance of such products and the
acceptance of the Internet internationally. The Company expects to commit
significant resources to customizing its products for selected international
markets and to developing international sales and support channels. The
Company's products rely on a knowledge base that contains detailed information
based on specific English language versions of third-party hardware and software
applications. This knowledge base must be recreated for each foreign language
version that is developed to support foreign releases of such products, many of
which have been modified from their United States releases. There can be no
assurance that this task can be completed in a timely or cost-effective manner
or that enough products can be supported to ensure customer acceptance. The
Company believes that successful execution of a global strategy is critical to
maintaining its current market position and competitive advantage. Failure to
successfully expand its products to international markets could cause the
Company to lose business to global competitors or prevent the development of
strategic relationships with global hardware and software vendors.

International operations are subject to a number of risks, including costs
of customizing products for foreign countries, dependence on independent
resellers, multiple and conflicting regulations regarding communications, use of
data and control of Internet access, longer payment cycles, unexpected changes
in regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, greater difficulty or
delay in accounts receivable collection, potentially adverse tax consequences,
the burdens of complying with a variety of foreign laws, the impact of possible
recessionary economic environments in economies outside the United States and
political and economic instability. An increase in the value of the United
States dollar relative to foreign currencies could make the Company's products
more expensive and, therefore, potentially less competitive in foreign markets.
If the Company increases its international sales, its net revenues may also be
affected to a greater extent by seasonal fluctuations resulting from lower sales
that typically occur during the summer months in Europe and other parts of the
world. Moreover, the laws of certain foreign countries in which the Company's
products may be sold may not protect the Company's intellectual property rights
to the same extent as do the laws of the United States, thus increasing the
possibility of piracy of the Company's products.

In addition, the European Monetary Union is embarking on a multi-year
introduction and conversion to a common currency, the Euro. There can be no
assurance that the Company can adopt or modify its systems and processes in a
timely and cost effective manner to accept this new currency. Any delays or
inability to conduct business using the Euro could materially adversely affect
the Company's business, results of operations and financial condition.

Reliance on Outside Resources. The Company relies upon independent
contractors to perform a number of tasks, including product duplication and
packaging, reproduction of manuals and brochures and order fulfillment. The
Company depends on these outside parties to perform such functions to the
Company's specifications and quality standards. The Company currently does not
have long-term agreements with any of these outside parties. The Company
supplements its in-house product development by engaging work-for-hire

29
<PAGE> 31

software engineers in India. In addition, the Company from time to time engages
other software engineers on a contract basis. Although the Company believes that
alternative resources exist or can be obtained, a disruption of the Company's
relationship with any of these outside parties or the failure of these outside
parties to continue to provide quality supplies and services on a timely basis
could materially adversely affect the Company's business, results of operations
and financial condition.

Anti-takeover Provisions. The Company's Board of Directors has the
authority to issue up to 2,000,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock may delay, defer or
prevent a change in control of the Company. In addition, Section 203 of the
Delaware General Corporation Law, to which the Company is subject, restricts
certain business combinations with any "interested stockholder" as defined by
such statute. The statute may delay, defer or prevent a change in control of the
Company.

30
<PAGE> 32

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

The Board of Directors
CyberMedia, Inc.:

We have audited the accompanying consolidated balance sheets of CyberMedia,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CyberMedia,
Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.

[/s/ KPMG Peat Marwick LLP]

Long Beach, California
March 25, 1998

31
<PAGE> 33

CYBERMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $39,322,000 $25,059,000
Marketable securities..................................... -- 1,001,000
Trade accounts receivable, net............................ 12,318,000 19,851,000
Inventory................................................. 2,365,000 3,590,000
Prepaid expenses.......................................... 1,270,000 1,417,000
Deferred taxes............................................ -- 3,619,000
Other current assets...................................... 185,000 1,091,000
----------- -----------
Total current assets.............................. 55,460,000 55,628,000
Furniture, fixtures and equipment, net...................... 990,000 4,191,000
Other assets................................................ -- 284,000
----------- -----------
$56,450,000 $60,103,000
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,004,000 $ 8,753,000
Accrued expenses.......................................... 1,247,000 2,917,000
Related party payable..................................... -- 618,000
Income taxes payable...................................... -- 2,787,000
Unearned revenues......................................... 4,024,000 3,655,000
Grant payable............................................. 413,000 390,000
Current portion of capital lease.......................... 45,000 17,000
Deferred obligation for acquired research and
development............................................ -- 2,913,000
----------- -----------
Total current liabilities......................... 12,733,000 22,050,000
Capital lease obligation and deferred rent.................. 49,000 284,000
Deferred obligation for acquired research and development... -- 1,125,000
----------- -----------
Total liabilities................................. 12,782,000 23,459,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01, 2,000,000 shares
authorized; none issued and outstanding................ -- --
Common stock, $0.01 par value. Authorized 50,000,000
shares; issued and outstanding 11,825,354, and
12,511,654 shares in 1996 and 1997, respectively....... 119,000 126,000
Additional paid-in capital................................ 52,583,000 57,587,000
Accumulated deficit....................................... (9,034,000) (20,774,000)
Cumulative foreign currency translation adjustment........ -- (295,000)
----------- -----------
Total stockholders' equity........................ 43,668,000 36,644,000
----------- -----------
$56,450,000 $60,103,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.
32
<PAGE> 34

CYBERMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues........................................... $ 4,797,000 $38,524,000 $ 71,227,000
Cost of revenues....................................... 2,103,000 11,991,000 14,477,000
----------- ----------- ------------
Gross profit......................................... 2,694,000 26,533,000 56,750,000
Research and development............................... 964,000 3,300,000 9,333,000
Sales and marketing.................................... 4,036,000 24,125,000 39,464,000
General and administrative............................. 987,000 2,941,000 6,940,000
One-time in-process R&D and acquisition expenses....... -- -- 11,341,000
----------- ----------- ------------
Total operating expenses..................... 5,987,000 30,366,000 67,078,000
----------- ----------- ------------
Loss from operations................................. (3,293,000) (3,833,000) (10,328,000)
----------- ----------- ------------
Interest income, net................................... 22,000 420,000 1,191,000
Other (expense)........................................ (80,000) (69,000) (21,000)
----------- ----------- ------------
Loss before income taxes............................. (3,351,000) (3,482,000) (9,158,000)
Income tax expense..................................... 1,000 1,000 2,582,000
----------- ----------- ------------
Net loss............................................. $(3,352,000) $(3,483,000) $(11,740,000)
=========== =========== ============
Basic and diluted net loss per common share............ $ (2.56) $ (0.88) $ (0.97)
=========== =========== ============
Common shares used in computing per share amounts...... 1,311,000 3,943,000 12,128,000
=========== =========== ============
</TABLE>

See accompanying notes to consolidated financial statements.
33
<PAGE> 35

CYBERMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED
STOCK STOCK STOCK
-------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994................. 2,816,801 $28,000 -- $ -- -- $ --
Issuance of Series A Preferred Stock in
exchange for cash........................... 142,857 2,000 -- -- -- --
Issuance of Common Stock upon exercise of
stock options............................... -- -- -- -- -- --
Conversion of notes payable into Series B
Preferred Stock............................. -- -- 635,714 6,000 -- --
Issuance of Series B Preferred Stock in
exchange for cash........................... -- -- 5,735,715 58,000 -- --
Net loss..................................... -- -- -- -- -- --
---------- ------- ---------- ------- ---------- --------
Balance at December 31, 1995................. 2,959,658 30,000 6,371,429 64,000 -- --
Issuance of Series C Preferred Stock in
exchange for cash........................... -- -- -- -- 1,666,667 17,000
Issuance of Common Stock upon exercise of
stock options and warrants.................. -- -- -- -- -- --
Issuance of Common Stock upon Conversion of
Series A, B and C Preferred Stock........... (2,959,658) (30,000) (6,371,429) (64,000) (1,666,667) (17,000)
Issuance of Common Stock upon initial public
offering, net of underwriting discounts and
offering costs of $4,444,000................ -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ------- ---------- ------- ---------- --------
Balance at December 31, 1996................. -- -- -- -- -- --
Issuance of Common Stock upon exercise of
stock options and warrants.................. -- -- -- -- -- --
Issuance of Common Stock upon acquisition of
Walk Softly................................. -- -- -- -- -- --
Tax benefits from stock option exercises..... -- -- -- -- -- --
Additional costs related to initial public
offering.................................... -- -- -- -- -- --
Issuance of warrants for acquisition of
in-process R&D.............................. -- -- -- -- -- --
Warrants exercised in cashless transaction... -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
Foreign currency translation adjustment...... -- -- -- -- -- --
---------- ------- ---------- ------- ---------- --------
-- $ -- -- $ -- -- $ --
========== ======= ========== ======= ========== ========

<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL FOREIGN STOCKHOLDERS'
--------------------- PAID-IN ACCUMULATED CURRENCY EQUITY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION (DEFICIENCY)
---------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994................. 1,172,500 $ 12,000 $ 1,004,000 $ (2,199,000) $ -- $ (1,155,000)
Issuance of Series A Preferred Stock in
exchange for cash........................... -- -- 48,000 -- -- 50,000
Issuance of Common Stock upon exercise of
stock options............................... 50,000 1,000 2,000 -- -- 3,000
Conversion of notes payable into Series B
Preferred Stock............................. -- -- 439,000 -- -- 445,000
Issuance of Series B Preferred Stock in
exchange for cash........................... -- -- 3,958,000 -- -- 4,016,000
Net loss..................................... -- -- -- (3,352,000) -- (3,352,000)
---------- -------- ----------- ------------- --------- ------------
Balance at December 31, 1995................. 1,222,500 13,000 5,451,000 (5,551,000) -- 7,000
Issuance of Series C Preferred Stock in
exchange for cash........................... -- -- 4,983,000 -- -- 5,000,000
Issuance of Common Stock upon exercise of
stock options and warrants.................. 2,228,977 22,000 566,000 -- -- 588,000
Issuance of Common Stock upon Conversion of
Series A, B and C Preferred Stock........... 5,498,877 55,000 56,000 -- -- --
Issuance of Common Stock upon initial public
offering, net of underwriting discounts and
offering costs of $4,444,000................ 2,875,000 29,000 41,527,000 -- -- 41,556,000
Net loss..................................... -- -- -- (3,483,000) -- (3,483,000)
---------- -------- ----------- ------------- --------- ------------
Balance at December 31, 1996................. 11,825,354 119,000 52,583,000 (9,034,000) -- 43,668,000
Issuance of Common Stock upon exercise of
stock options and warrants.................. 563,832 6,000 2,778,000 -- -- 2,784,000
Issuance of Common Stock upon acquisition of
Walk Softly................................. 122,468 1,000 8,000 -- -- 9,000
Tax benefits from stock option exercises..... -- -- 1,391,000 -- -- 1,391,000
Additional costs related to initial public
offering.................................... -- -- (261,000) -- -- (261,000)
Issuance of warrants for acquisition of
in-process R&D.............................. -- -- 750,000 -- -- 750,000
Warrants exercised in cashless transaction... -- -- 338,000 -- -- 338,000
Net loss..................................... -- -- -- (11,740,000) -- (11,740,000)
Foreign currency translation adjustment...... -- -- -- -- (295,000) (295,000)
---------- -------- ----------- ------------- --------- ------------
12,511,654 $126,000 $57,587,000 $ (20,774,000) $(295,000) $ 36,644,000
========== ======== =========== ============= ========= ============
</TABLE>

See accompanying notes to consolidated financial statements.

34
<PAGE> 36

CYBERMEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,352,000) $(3,483,000) $(11,740,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 19,000 237,000 810,000
Deferred taxes.......................................... -- -- (3,619,000)
Deferred rent........................................... -- -- 235,000
Warrants exercised in cashless transaction.............. -- -- 338,000
Warrants issued for acquired R&D........................ -- -- 750,000
Changes in assets and liabilities:
Trade accounts receivable, net.......................... (1,143,000) (11,136,000) (7,533,000)
Inventory............................................... (407,000) (1,953,000) (1,225,000)
Prepaid expenses........................................ (84,000) (1,159,000) (147,000)
Other current assets.................................... (10,000) (175,000) (906,000)
Accounts payable........................................ 1,362,000 5,384,000 1,749,000
Accrued expenses and related party payables............. 189,000 828,000 2,288,000
Income taxes payable.................................... -- -- 4,178,000
Unearned revenues....................................... 677,000 3,347,000 (369,000)
Grant payable........................................... 276,000 (194,000) (23,000)
Deferred obligation for acquired R&D.................... -- -- 4,038,000
Other liabilities....................................... (25,000) -- --
----------- ----------- ------------
Net cash used in operating activities................. (2,498,000) (8,304,000) (11,176,000)
Cash flows used in investing activities -- purchase of:
Marketable securities..................................... -- -- (1,001,000)
Furniture, fixtures and equipment......................... (67,000) (1,043,000) (3,901,000)
Goodwill and other assets................................. -- -- (394,000)
----------- ----------- ------------
Net cash used in investing activities................. (67,000) (1,043,000) (5,296,000)
Cash flows from financing activities:
Proceeds from the issuance of Series A Preferred Stock.... 50,000 -- --
Proceeds from the issuance of Series B Preferred Stock.... 4,016,000 -- --
Proceeds from the issuance of Series C Preferred Stock.... -- 5,000,000 --
Payments of capital lease obligations..................... (1,000) (25,000) (28,000)
Proceeds from the issuance of Common Stock upon exercise
of stock options and warrants........................... 3,000 588,000 2,793,000
Proceeds from (repayments of) note payable................ 445,000 (500,000) --
Proceeds from the issuance of Common Stock upon initial
public offering (additional offering expenses).......... -- 41,556,000 (261,000)
Proceeds from the receipt of grant........................ -- -- --
----------- ----------- ------------
Net cash provided by financing activities............. 4,513,000 46,619,000 2,504,000
----------- ----------- ------------
Effect of exchange rate changes on cash..................... -- -- (295,000)
----------- ----------- ------------
Net increase(decrease) in cash and cash equivalents... 1,948,000 37,272,000 (14,263,000)
Cash and cash equivalents at beginning of period............ 102,000 2,050,000 39,322,000
----------- ----------- ------------
Cash and cash equivalents at end of period.................. $ 2,050,000 $39,322,000 $ 25,059,000
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 80,000 $ 69,000 $ 402,000
Income taxes............................................ $ 1,000 $ 440,000 $ 1,560,000
Supplemental disclosure of noncash investing and financing
activities:
Tax benefits from stock option exercises.................. -- -- 1,391,000
Conversion of notes payable into Series B Preferred
Stock................................................... $ 445,000 $ -- $ --
Acquisition of equipment through capital lease
agreements.............................................. $ 26,000 $ 94,000 $ --
</TABLE>

See accompanying notes to consolidated financial statements.
35
<PAGE> 37

CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Pooling of Interests

CyberMedia, Inc. (the "Company"), a Delaware corporation, develops and
markets software products that provide automatic service and support to PC users
in the Windows environment. Products are principally sold to distributors and
directly to consumers. The Company also markets its products internationally
through its wholly-owned subsidiaries, CyberHelp Ltd. in Ireland and CyberMedia
KK in Japan and through certain distribution and licensing agreements. For the
years ended 1996 and 1997, approximately 10% and 19%, respectively, of the
Company's net revenues were from international sales. Prior to 1996,
international sales were less than 5% of net revenues. In 1997, European
business accounted for 13%, 4% and 4% of the Company's net revenues, loss before
taxes and net loss, respectively. Assets located in Europe were less than 10% of
total assets in 1996 and 1997.

In April 1997, the Company acquired, in a transaction accounted for as a
pooling of interests, all of the outstanding shares of Walk Softly, Inc. 122,468
shares of common stock were issued in connection with this acquisition. The
results of operations of Walk Softly, Inc. were insignificant; accordingly,
results of operations for periods prior to the transaction have not been
restated.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany transactions have been
eliminated in consolidation.

Cash Equivalents

The Company considers all highly liquid investments having original
maturities of three months or less to be cash equivalents.

Marketable Securities

Marketable securities, considered by the Company to be available-for-sale,
consist primarily of bankers' acceptances and commercial paper of large U.S.
corporations. The securities are stated at cost, which approximates market.

Inventory

Inventory, consisting of software product and related packaging materials,
is stated at the lower of cost (first-in, first-out method) or market. Inventory
is shown net of valuation allowances of $430,000 and $74,000 at December 31,
1996 and 1997, respectively.

Revenue Recognition

The Company provides routine telephone customer support as an accommodation
to purchasers of its products for a limited time. Costs associated with such
post-sale customer support were immaterial.

36
<PAGE> 38
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenue Related Allowances

Allowances for sales returns and doubtful accounts are established based
upon historical experience and management's estimates as shipments are made. The
allowance for sales returns and doubtful accounts aggregated $1,523,000 and
$15,749,000 at December 31, 1996 and 1997, respectively, and is shown as a
reduction of accounts receivable on the accompanying balance sheets. The
allowance for sales returns includes the Company's estimation of costs related
to its price protection policy. Such costs have historically been immaterial.

Unearned Revenues

The Company offers customers update rights for certain products at no
additional cost. As a result, ratable revenue recognition is appropriate for a
portion of the license fees for such products. Accordingly, unearned revenues on
the accompanying balance sheets represent Internet and other product updates and
other unspecified future support commitments which will be recognized ratably
over the estimated update periods, generally twelve months.

Research and Development and Purchased In-Process R & D

Costs relating to designing, developing and testing new software products
are expensed as research and development as incurred. Although costs incurred
subsequent to establishing technological feasibility of software products are to
be capitalized pursuant to Statement of Financial Accounting Standards ("SFAS")
No. 86 (Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed), the Company has not capitalized any software development
costs since the impact to the financial statements for all periods presented has
been immaterial.

The Company has acquired certain software code, including non-exclusive
rights to use software code developed by others, with the intent to incorporate
such purchased technology in future products. Where such purchased technology
rights are determined to have no alternative future use other than in
development of future products, the Company expenses amounts paid. During 1997,
the Company expensed an aggregate of $11,341,000 in connection with two
acquisitions of such in process research and development.

In the first acquisition, the Company paid cash of $4.0 million, agreed to
pay additional minimum guaranteed amounts of $4.5 million and issued warrants to
purchase 150,000 shares of the Company's common stock at $9.13 per share. The
warrants were valued at $750,000 (see note 7). In the second

37
<PAGE> 39
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

acquisition, the Company paid cash of $1.1 million and agreed to pay an
additional $1.3 million in installments due through September 1998.

Depreciation and Amortization

Furniture, fixtures and equipment are stated at cost. Depreciation of
furniture, fixtures and equipment is calculated on the straight-line
depreciation method over the estimated useful lives as follows:

<TABLE>
<S> <C>
Computer equipment and purchased
software............................... 3 years
Office furniture and equipment........... 3-4 years
Assets under capital lease............... Shorter of lease term or
the estimated useful life
of the asset
</TABLE>

Income Taxes

The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes). Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

Computation of Net Loss per Share

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. The Company has reflected the provisions of SFAS 128 in
the accompanying consolidated financial statements for all periods presented.
SFAS 128 replaces the presentation of primary Earnings Per Share ("EPS") with a
presentation of basic EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. The Statement also requires the dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures. Diluted EPS is computed similarly
to fully diluted EPS pursuant to Accounting Principles Board (APB) Opinion No.
15. Due to the losses reported by the Company in each of the last three years,
any potential common shares to be included in diluted earnings per share as a
result of common stock options and warrants are anti-dilutive and thus diluted
earnings per share and basic earnings per share are equal. Potentially dilutive
securities not included in the computation of basic earnings per share consisted
of stock options and warrants outstanding as of December 31, 1997. See Notes 7
and 8.

In February 1998, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 98 which changes the calculation of
earnings per share in periods prior to initial public offerings as previously
applied under SAB No. 83. When a registrant issued common stock, warrants,
options, or other potentially dilutive instruments for consideration or with
exercise prices below the initial public offering price within a one year period
prior to the initial filing of a registration statement relating to an initial
public offering, SAB No. 83 required such equity instruments to be treated as
outstanding for all periods presented in the filing using the anticipated
initial public offering price and the treasury stock method. Under SAB No. 98,
when common stock options, warrants, or other potentially dilutive instruments
have been issued for nominal consideration during the periods covered by income
statements in the filing, those nominal issuances are to be reflected in
earnings per share calculations for all periods presented. Based on the
Company's current understanding of the definition of "nominal consideration,"
the Company has concluded that during all

38
<PAGE> 40
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

periods prior to the Company's initial public offering, no equity instruments
were issued for nominal consideration. Per share results for periods prior to or
including the Company's initial public offering have been restated in accordance
with SAB No. 98.

Financial Instruments

The Financial Accounting Standards Board's SFAS No. 107 (Disclosures about
Fair Value of Financial Instruments) defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The Company's carrying value of cash
equivalents, accounts receivable, accounts payable, accrued expenses, grant
payable, capital lease obligations and notes payable approximates fair value
because each instrument has a short-term maturity or because the applicable
interest rates are comparable to current borrowing rates.

Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset are less than the carrying value, a
write-down would be recorded to reduce the related asset to the appropriate
value.

Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

(2) FURNITURE, FIXTURES AND EQUIPMENT

Furniture, fixtures and equipment, stated at cost, are summarized as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Office furniture and equipment.............. $ 348,000 $1,524,000
Computer equipment and purchased software... 923,000 3,621,000
---------- ----------
1,271,000 5,165,000
---------- ----------
Less accumulated depreciation............... (281,000) (974,000)
---------- ----------
$ 990,000 $4,191,000
========== ==========
</TABLE>

Assets acquired under capitalized leases, which are principally included in
computer equipment above, at December 31, 1996 and 1997 aggregated $168,000 and
$62,000 respectively. Accumulated depreciation related to these assets
aggregated $57,000 and $43,000 at December 31, 1996 and 1997, respectively.

39
<PAGE> 41
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Accrued compensation and related expenses... $ 363,000 $ 979,000
Accrued IPO related expenses................ 419,000 --
Accrued advertising......................... 339,000 1,938,000
Other....................................... 126,000 --
---------- ----------
$1,247,000 $2,917,000
========== ==========
</TABLE>

(4) GRANT PAYABLE

In August 1992, the Company received a grant under the Program for the
Advancement of Commercial Technology Provided by the United States Agency for
International Development and administered by the Industrial Credit and
Investment Corporation of India Limited ("ICICI"). As of December 31, 1994, the
Company had received $318,000, which had been allocated to the Company
concurrent with the development of its products. Under the terms of the
agreement, the Company is obligated to repay up to $795,000, through royalties
based on product sales, as defined. The Company accrued royalty expense related
to this grant of $276,000 during the year ended December 31, 1995. During the
year ended December 31, 1996, the Company had reduced the royalty amount accrued
to $95,000, which represented the total royalty amount the Company expected to
pay in addition to the original grant amount of $318,000. During 1997, the
Company paid ICICI $409,000 and accrued the remaining $386,000 representing the
maximum amount payable under the terms of the grant.

(5) FINANCING ARRANGEMENTS

The Company had a revolving line of credit of $3,000,000 bearing interest
at the prime rate plus 1% which expired in April 1997. As of December 31, 1996,
the Company had no outstanding borrowings on this revolving line of credit which
was collateralized by all assets of the Company. The Company was restricted
under the revolving line of credit from declaring or paying a dividend on any of
its capital stock without bank consent. The Company currently has a $1,000,000
unrestricted line of credit which bears interest at the prime rate, and is
collateralized by all assets of the Company. At December 31, 1997 the Company
had no outstanding borrowings on this line of credit.

The Company has from time to time utilized receivable based financing made
available by commercial banks including sales of trade accounts receivable to
such commercial banks. Such arrangements are non-recourse, except for sales
returns and marketing credits. On September 30, 1997 the Company sold $4,831,000
of trade accounts receivable without recourse (subject to sales returns and
marketing credits). At December 31, 1997, $552,000 of such accounts receivable
remained outstanding; however subsequent to December 31, 1997, such amounts were
satisfied in full.

40
<PAGE> 42
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) INCOME TAXES

The provision for income taxes, all current, for the years ended December
31, 1995 and 1996 consists solely of the annual minimum California franchise tax
of approximately $1,000. The tax provision for 1997 is summarized as follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Federal....................... $5,029,000 $(3,619,000) $1,410,000
State......................... 1,080,000 -- 1,080,000
Foreign....................... 92,000 92,000
---------- ----------- ----------
Total income tax
expense........... 6,201,000 $(3,619,000) $2,582,000
=========== ==========
Reduction of taxes for stock
option exercises............ 1,391,000
----------
Current taxes................. $4,810,000
==========
</TABLE>

During 1997, the Company recognized tax benefits related to stock option
plans of $1,391,000. Such benefits were recorded as an increase to additional
paid in capital.

The provision for income taxes differs from the expected tax benefit
computed by applying the federal corporate tax rate of 34% to loss before income
taxes principally due to the effect of net operating loss carryforwards in 1995
and 1996. For 1997, the provision for income taxes differs from the expected tax
benefit computed using the federal corporate tax rate of 34% as follows:

<TABLE>
<S> <C>
Expected income tax benefit................................. $(3,114,000)
State tax benefit (net)..................................... (562,000)
Increase in valuation allowance............................. 7,152,000
Tax credits................................................. (1,007,000)
Permanent differences....................................... 110,000
Other....................................................... 3,000
-----------
Income tax expense................................ $ 2,582,000
===========
</TABLE>

41
<PAGE> 43
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Allowances................ $ 307,000 $ 474,000 $ 6,414,000
Depreciation and
amortization........... -- -- 3,653,000
Accrued expenses.......... 32,000 140,000 586,000
Unearned revenues......... 243,000 1,333,000 1,392,000
Grant payable............. 127,000 (127,000) --
Net operating losses...... 1,506,000 1,124,000 1,164,000
Other..................... -- 47,000 553,000
----------- ----------- -----------
Total gross
deferred tax
assets.......... 2,215,000 2,991,000 13,762,000
Less valuation
allowance....... (2,215,000) (2,991,000) (10,143,000)
----------- ----------- -----------
Net deferred tax assets..... $ -- $ -- $ 3,619,000
=========== =========== ===========
</TABLE>

The net change in the valuation allowance for the years ended December 31,
1995, 1996 and 1997 was an increase of $1,359,000, $776,000 and $7,152,000,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the ability of the Company to recover taxes
previously paid, through carryback of future tax losses or upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based on the level of historical
taxable income and projections for future taxable income over the periods in
which the level of deferred tax assets are deductible, management believes that
it is not more likely than not that the Company will realize the benefits of all
these deductible differences at December 31, 1996 and 1997. Accordingly,
valuation allowances have been provided against gross deferred tax assets in
order to reduce deferred tax assets to an amount believed by management to be
recoverable through carryback of future expected tax losses to recover taxes
paid in 1997.

The Company had available at December 31, 1997 approximately $3,052,000 of
net operating losses to offset future Federal taxable income that expire
beginning in the year 2006. Use of these net operating losses will be limited
under rules governing changes in ownership of the Company. These rules restrict
the amount of the net operating loss carryforwards which may be used in a
particular year. The maximum amount of net operating loss carryforwards which
are available on an annual basis for use subsequent to the year ended December
31, 1997 is approximately $214,000.

(7) STOCKHOLDERS' EQUITY

Preferred Stock

During 1995, the Company issued 5,735,715 shares of Series B Preferred
Stock for cash consideration and issued 635,714 shares of Series B Preferred
Stock upon conversion of certain notes payable. The Company also issued 142,857
shares of Series A Preferred Stock for cash consideration in 1995.

During July 1996, the Company issued 1,666,667 shares of Series C Preferred
Stock at a price of $3.00 per share, convertible into approximately 833,334
shares of Common Stock.

42
<PAGE> 44
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During October 1996, upon the closing of the initial public offering, all
of the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock were converted to 1,479,829, 3,185,714 and 833,334 shares of
Common Stock, respectively.

No dividends were declared during the years ended December 31, 1995, 1996
and 1997.

Upon the closing of the initial public offering, the Company was authorized
to issue 2,000,000 shares of Undesignated Preferred Stock.

Common Stock

During October 1996, the Company completed an initial public offering of
its Common Stock whereby 2,500,000 shares were issued at $16 per share resulting
in net proceeds of approximately $37,200,000, after underwriting discounts and
commissions and before other expenses of the offering of $1,224,000.
Additionally, 375,000 shares for the underwriter's overallotment were issued at
$16 per share resulting in net proceeds of approximately $5,580,000, after
underwriter discounts and commissions.

Stock Warrants

During the years ended December 31, 1994 and 1995, the Company issued
warrants for the purchase of a total of 1,766,471 shares of Series A Preferred
Stock at exercise prices ranging from $0.35 to $0.70 per share. No value was
ascribed to the warrants because management was of the opinion that the impact
of any such value was negligible to the accompanying consolidated financial
statements. These warrants were exercised and converted into 866,152 shares of
Common Stock during the year ended December 31, 1996.

The Company issued warrants for the purchase of 49,644 shares of Common
Stock at $1.40 per share during the year ended December 31, 1995 and issued
warrants for the purchase of 70,667 shares of Common Stock at an exercise price
of $4.50 per share during the year ended December 31, 1996. No value was
ascribed to the warrants because management was of the opinion that the impact
of any such value is negligible to the accompanying consolidated financial
statements. Warrants for the purchase of 50,643 shares of Common Stock were
exercised during the year ended December 31, 1996, resulting in the issuance of
46,933 shares of Common Stock. During 1997, 150,000 warrants exercisable at a
price of $9.13 were issued in connection with the acquisition of certain in
process research and development. These warrants were valued at $750,000 using
the Black-Scholes option-pricing model, which amount was recorded as in process
research and development expense. Warrants for the purchase of 157,000 shares of
Common Stock were exercised during the year ended December 31, 1997 resulting in
the issuance of 154,554 shares of Common Stock. Therefore, as of December 31,
1997, 62,668 warrants remained outstanding of which 25,000 expire in 1999 and
37,668 expire in 2002.

(8) STOCK OPTIONS

The Company has a 1992 Stock Plan and an Amended 1993 Stock Plan in which
various options have been issued which allow the option holder to purchase
shares of the Company's Common Stock at fair market value. Options granted vest
immediately or over periods as determined by the Company's Board of Directors,
generally four years. During August 1996, the Company's Board of Directors
approved the increase in the

43
<PAGE> 45
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

number of shares of Common Stock reserved under the Amended 1993 Stock Plan to
3,902,000. Stock option activity under the plans is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1996 1997
---------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period:......... 821,500 $0.08 1,846,025 $0.10 1,799,955 $ 2.83
Granted............ 1,074,525 0.11 1,401,420 3.64 1,371,587 14.37
Exercised.......... (50,000) 0.05 (1,315,892) 0.09 (382,638) 3.20
Canceled........... -- -- (131,598) 0.47 (394,027) 6.74
---------- ----------- -----------
Balance at end of
period............. 1,846,025 $0.10 1,799,955 $2.83 2,394,877 $ 8.74
========== =========== ===========
Exercisable stock
options............ 1,213,692 $0.08 341,181 $2.73 656,273 $ 3.59
========== =========== ===========
Price range of
options............ $0.08-0.14 $0.08-23.50 $0.14-24.25
========== =========== ===========
</TABLE>

The weighted average contractual life of stock options outstanding as of
December 31, 1996 and 1997 was 9.2 years and 8.9 years, respectively. The
following table summarizes information about stock options outstanding and
exercisable at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
# OF OPTIONS WEIGHTED AVERAGE NUMBER
OUTSTANDING AT REMAINING EXERCISABLE AT
RANGE OF DECEMBER 31, CONTRACTUAL LIFE WEIGHTED AVERAGE DECEMBER 31, WEIGHTED AVERAGE
EXERCISE PRICES 1997 IN YEARS EXERCISE PRICE 1997 EXERCISE PRICE
--------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
0.14................. 279,171 7.8 $ 0.14 148,213 $ 0.14
1.20................. 517,485 8.0 1.20 241,942 0.69
2.00-3.00............ 83,314 8.2 2.54 37,361 2.51
3.50-4.50............ 111,357 8.4 3.90 40,964 3.87
6.00-9.00............ 208,959 8.9 7.49 112,563 8.10
9.50-12.75........... 210,586 9.2 10.63 50,013 10.12
14.75-21.5........... 831,585 9.6 14.85 25,111 14.78
22.875-24.25......... 152,420 9.8 23.31 106 23.50
--------- -------
2,394,877 8.74 656,273 3.59
========= =======
</TABLE>

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which was effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Under SFAS No. 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely
tradeable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. Companies
are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company has elected to continue to apply APB Opinion No.
25 in accounting for its stock-based compensation arrangements. Had the Company
determined compensation cost

44
<PAGE> 46
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net loss and loss per share would have been increased to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net loss
As Reported.................................. $(3,352,000) $(3,483,000) $(11,740,000)
Pro forma.................................... $(3,383,000) $(4,026,000) $(13,622,000)
Net loss per share
As Reported.................................. $ (2.56) $ (0.88) $ (0.97)
Pro forma.................................... $ (2.58) $ (1.02) $ (1.12)
</TABLE>

The weighted-average fair value of options granted during the years ended
December 31, 1995, 1996 and, 1997 was $0.08, $2.11 and $8.34, respectively,
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 70.4% in 1995 and 1996 and 69.1% in 1997,
risk-free interest rate of 6.4% in 1995 and 1996 and 5.5% in 1997, no expected
dividends and an expected life of 4 years.

In early 1997, the Company recorded $750,000 as in process research and
development expense, which was determined to be the value of 150,000 warrants
issued in connection with an acquisition of certain in process technologies. The
value of these warrants was determined using the Black-Scholes option pricing
model with the following assumptions: expected volatility of 70.4%, risk free
interest rate of 6.4%, no expected dividends and an expected life of two years.

Pro forma net loss reflects only options granted in 1995, 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the option vesting periods of
up to four years and compensation cost for options granted prior to January 1,
1995 is not considered.

During the year ended December 31, 1996, the Company issued Common Stock to
certain directors who exercised unvested agreements. As defined more fully in
the stock option agreements, the Company retains the right to purchase such
stock at the original exercise price under terms similar to the original vesting
periods.

In June 1996, the Company's Board of Directors approved the 1996 Director
Option Plan. The Plan provides for the automatic and nondiscretionary grant of
nonstatutory stock options to nonemployee directors of the Company who are first
elected to the Board after the adoption of the Director Option Plan ("outside
directors"). A total of 50,000 shares of Common Stock have been reserved for
issuance under the Director Option Plan. Each outside director elected after the
adoption of the Plan will automatically be granted an option to purchase 5,000
shares on the date on which such person first becomes an outside director
("First Option") at the fair market value of the Company's Common Stock at the
date of grant. Each First Option granted vests ratably over specified periods,
approximately four years, subject to continued service as an outside director.
Thereafter, each outside director will be automatically granted an option to
purchase 5,000 shares on December 1 of each year beginning in 1997, provided he
or she shall have served on the Board for at least six months ("subsequent
option"). Each subsequent option shall have an exercise price equal to the fair
value of the Company's Common Stock as of the date of grant and shall be
exercisable ratably over four years, beginning three years and one month from
the date of grant, subject to continued service as an outside director. To date,
no options have been granted under the 1996 Director Option Plan.

45
<PAGE> 47
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) SIGNIFICANT CUSTOMERS, CONCENTRATION OF CREDIT RISK AND OTHER CONCENTRATIONS

Significant Customers

Net sales to certain customers represented 10% or more of the Company's net
revenues for the years ended December 31, 1995, 1996 and 1997. Net sales to
these customers were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Company A..................................... 19% -- --
Company B..................................... 16% 25% 25%
Company C..................................... -- 25% 25%
</TABLE>

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to credit
risk. These financial instruments consist primarily of trade receivables. The
Company sells to distributors, resellers and directly to end-users. The Company
performs ongoing credit evaluations of its customers and maintains allowances
for doubtful accounts and estimates of potential future product returns. The
Company's three major customers in 1996 represented 34%, 17% and 12%,
respectively, of trade accounts receivable net, at December 31, 1996. The
Company's three major customers for 1997 represented 44%, 23% and 12%,
respectively, of trade accounts receivable net, at December 31, 1997.

Other Concentrations

One product line constitutes over 90% of the Company's net revenues for the
years ended December 31, 1995 and 1996 and 75% in the year ended December 31,
1997. Any technical difficulties or other factors affecting sales of this
product line could adversely affect operating results.

As of December 31, 1997, the Company received 100% of its fulfillment
services from three fulfillment firms. A delay in product shipments from these
fulfillment companies could result in a possible loss of sales, which could
adversely affect operating results.

(10) EMPLOYEE BENEFIT PLANS

During May 1996, the Company adopted a 401(k) Plan (the "Plan"). All
full-time employees who have reached age 18 and who have been employed for at
least 30 days are eligible to participate in the Plan. The Company may make
discretionary contributions to the Plan. As of December 31, 1997, the Company
did not make any contributions to the Plan.

During June 1996, the Company's Board of Directors and stockholders
approved the 1996 Employee Stock Purchase Plan, which is intended to qualify
under Section 423 of the Internal Revenue Code. A total of 100,000 shares of
Common Stock have been reserved for issuance under the Employee Stock Purchase
Plan. Employees are entitled to participate if they satisfy certain criteria, as
defined, in the Employee Stock Purchase Plan agreement. As of December 31, 1997,
26,640 shares of Common Stock have been issued from the Employee Stock Purchase
Plan.

(11) RELATED PARTY TRANSACTIONS

In connection with the sale of the Series B Preferred Stock, the Company's
founders and the holders of the Series A Preferred Stock and the Series B
Preferred Stock entered into a Key Employees' Right of First Refusal, Co-Sale
and Voting Agreement ("Voting Agreement"). Pursuant to the Voting Agreement, the
Company is obligated to designate certain individuals as directors of the
Company.

46
<PAGE> 48
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In October 1995, three of the Company's directors each received options to
purchase 75,000 shares of the Company's Common Stock. The options have an
exercise price equal to the fair market value of the stock at the date of grant
and vest over four years from the date of grant, subject to providing continued
consulting services to the Company. During the year ended December 31, 1996,
each of the directors exercised such options, including the unvested options,
and such shares are subject to repurchase on the same four-year vesting
schedule. See Note 8.

In September 1995, a director of the Company advanced a series of loans to
the Company to meet then-existing financial requirements. The loans were
converted into Series B Preferred Stock in consideration for the loans to the
Company. The director received warrants to purchase 17,857 shares of the
Company's Common Stock at an exercise price of $1.40 which expire on the earlier
of five years from the date of issue or the closing of an initial public
offering. During the year ended December 31, 1996, the director exercised such
warrants.

At December 31, 1997 the Company owed two of the Company's founders
$618,000, which monies had been deposited in the Company's bank account pending
exercise of their stock options. These monies are shown separately on the face
of the balance sheet.

(12) COMMITMENTS AND CONTINGENCIES

The Company leases office facilities under operating leases which expire on
October 31, 2002. Rent expense aggregated $79,000, $469,000, and $1,063,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. The Company also
leases equipment under operating leases which expire within the next four years.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
OPERATING
----------
<S> <C>
Year ending December 31:
1998........................................... $1,665,000
1999........................................... 1,654,000
2000........................................... 1,323,000
2001........................................... 939,000
2002........................................... 783,000
----------
Total minimum lease payments........... $6,364,000
==========
</TABLE>

The Company is from time to time subject to claims and litigation that
arise in the normal course of business. In the opinion of management, in part
based upon advice of counsel, such claims will not have a material impact upon
the Company's financial position or results of operations.

The Company has entered into employment agreements with Company founders
which include terms whereby the founders are to receive full payment of salary
and benefits for specified periods, as set forth more fully in the employment
agreements, in the event of early termination. See Note 14.

47
<PAGE> 49
CYBERMEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DELETIONS OF PERIOD
----------- ------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
December 31, 1995................. $ 3,000 97,000 $ -- $ 100,000
December 31, 1996................. 100,000 101,000 (21,000) 180,000
December 31, 1997................. 180,000 393,000 (82,000) 491,000
Reserve for sales returns:
December 31, 1995................. 9,000 921,000 (263,000) 667,000
December 31, 1996................. 667,000 3,234,000 (2,558,000) 1,343,000
December 31, 1997................. 1,343,000 19,640,000 (5,234,000) 15,749,000
Allowance for obsolete inventory:
December 31, 1995................. -- -- -- --
December 31, 1996................. -- 430,000 -- 430,000
December 31, 1997................. 430,000 -- (356,000) 74,000
</TABLE>

Deletions included above were recorded for actual bad debts, sales returns
activity and disposal of excess and obsolete inventories, respectively.

(14) SUBSEQUENT EVENTS

On March 13, 1998, a shareholder class action complaint was filed against
the Company and certain of its current and former officers and directors. The
complaint, Ong v. Cybermedia, No. 98-1811, was filed in the Central District of
California. The complaint alleges a class period between July 22, 1997 and March
13, 1998. The complaint asserts claims under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934. The Company has not yet been served with the
complaint. On March 19, 1998, a second class action complaint was filed against
the Company and certain of its officers and directors. The complaint, Brown v.
CyberMedia, No. B C187898, was filed in the Superior Court of Los Angeles
County. It alleges a class period from March 31, 1997 through March 12, 1998,
and asserts claims under Sections 25400 and 25500 of the California Corporations
Code, Sections 1709 - 1710 of the California Civil Code, and Section 17200 of
the California Business and Professions Code. The Company intends to defend
against these actions vigorously.

In January, February and March 1998, the Company's Vice-President of
International Sales, Chief Financial Officer and Chief Executive Officer
resigned, respectively. Severance agreements with these individuals and certain
other employees who have resigned since December 31, 1997 include salary
extension and acceleration of certain stock option vesting periods. Aggregate
costs associated with these severance arrangements, estimated to be $1.4
million, will be recorded as expense in the Company's first quarter of calendar
1998.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

Not applicable.

48
<PAGE> 50

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors of the Company is incorporated by reference
to the information set forth in "ELECTION OF DIRECTORS -- Nominees" in the
Company's Proxy Statement for the Company's 1998 Annual Meeting of Stockholders
to be filed within 120 days after the end of the Company's fiscal year ended
December 31, 1997. The information concerning current executive officers of the
Registrant found under the caption "Executive Officers of the Registrant" in
Part 1 hereof is also incorporated by reference into this Item 10,

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to
"ELECTION OF DIRECTORS -- DIRECTOR COMPENSATION AND EXECUTIVE COMPENSATION OF
EXECUTIVE OFFICERS" in the Company's Proxy Statement to be filed within 120 days
after the end of the Company's fiscal year ended December 31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the
Company's Proxy Statement to be filed within 120 days after the end of the
Company's fiscal year ended December 31, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Company's Proxy
Statement to be filed within 120 days after the end of the Company's fiscal year
ended December 31, 1997.

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Annual Report on Form
10-K.

1. FINANCIAL STATEMENTS: the following documents are filed in Part II of
this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
PAGE IN FORM
10-K REPORT
------------
<S> <C>
Report of Independent Auditors.............................. 31
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... 32
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997.......................... 33
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997.............. 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.......................... 35
Notes to Consolidated Financial Statements.................. 36
</TABLE>

Other schedules have been omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

49
<PAGE> 51

2. FINANCIAL STATEMENT SCHEDULES:

None.

3. EXHIBITS: The exhibits listed on the accompanying index to exhibits are
filed as part of, or incorporated by reference into this 10-K.

<TABLE>
<C> <S>
3.1(1) Restated Certificate of Incorporation of Registrant.
3.2(2) Bylaws of Registrant, as amended.
10.1(1) Form of Indemnification Agreement with directors and
officers.
10.2(1) Amended 1993 Stock Plan and form of agreements thereunder.
10.3(1) 1996 Employee Stock Purchase Plan and form of agreement
thereunder.
10.4(1) 1996 Director Option Plan and form of agreements thereunder.
10.5(3) Asset Purchase Agreement, dated as of April 2, 1997, between
the Registrant and Luckman Intractive, Inc., and agreements
related thereto.
10.6 Registration Rights Agreement, dated as of April 1, 1997,
between the Registrant and the Shareholders named therein.
10.7(1) Sublease Agreement dated December 1995 between Century
Southwest Cable Television, Inc. and the Registrant.
10.8(1) Business Loan Agreement dated April 30, 1996 between
Imperial Bank and the Registrant.
10.9(1)* Distribution Agreement dated February 28, 1996 between the
Registrant and Ingram Micro Inc.
10.10(1)* Distribution Agreement dated March 1, 1996 between the
Registrant and Navarre Corporation.
10.11(1)* Distributor Contract dated March 20, 1996 between the
Registrant and Micro Central, Inc.
10.12(1) Form of Employment Agreements dated March 12, 1995 between
the Registrant and the Founders.
10.13(1) Loan Agreement dated June 22, 1994 between ICICI and the
Registrant.
10.14(1) Form of Agreement dated August 26, 1996 between the
Registrant and certain executive officers.
10.15(1) Form of Severance agreement between the Registrant and Brad
Kingsbury.
10.16(1) Form of Severance agreement between the Registrant and
Charles M. Valentine.
10.17(4)* Software License and Distribution Agreement between the
Registrant and ServiceWare, Inc. dated September 30, 1997.
10.18 Agreement and Plan of Reorganization, dated as of April 1,
1997, by and among the Registrant, WS Acquisition Corp.,
Walk Softly, Inc. and certain Shareholders of Walk Softly,
Inc.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>

- ---------------
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.

(1) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-11063) which was declared
effective on October 22, 1996.

50
<PAGE> 52

(2) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K filed on June 2, 1997.

(3) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(4) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1997.

(b) Reports on Form 8-K. No reports on 8-K were filed during the fourth quarter
of 1997.

51
<PAGE> 53

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of
State of California, on the 30th day of March 1998.

CYBERMEDIA, INC.

By: /s/ KANWAL REKHI
------------------------------------
Kanwal Rekhi
President, and Chairman of the Board
of Directors

Pursuant to the requirements of the Securities Act of 1934, as amended,
this report has been signed by the following persons in the capacities and on
the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ KANWAL REKHI President, Chairman of the March 30, 1998
- ----------------------------------------------------- Board and Director
Kanwal Rekhi (Principal Executive Officer)

/s/ JANE E. WIKE Controller March 30, 1998
- ----------------------------------------------------- (Principal Financial and
Jane E. Wike Accounting Officer)

/s/ SUHAS PATIL Director March 30, 1998
- -----------------------------------------------------
Suhas Patil

/s/ RONALD S. POSNER Director March 30, 1998
- -----------------------------------------------------
Ronald S. Posner

/s/ JAMES R. TOLONEN Director March 30, 1998
- -----------------------------------------------------
James R. Tolonen
</TABLE>

52
<PAGE> 54

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
-------- ----------- ------------
<C> <S> <C>
3.1(1) Restated Certificate of Incorporation of Registrant.........
3.2(2) Bylaws of Registrant, as amended............................
10.1(1) Form of Indemnification Agreement with directors and
officers....................................................
10.2(1) Amended 1993 Stock Plan and form of agreements thereunder...
10.3(1) 1996 Employee Stock Purchase Plan and form of agreement
thereunder..................................................
10.4(1) 1996 Director Option Plan and form of agreements
thereunder..................................................
10.5(3) Asset Purchase Agreement, dated as of April 2, 1997, between
the Registrant and Luckman Intractive, Inc., and agreements
related thereto.............................................
10.6 Registration Rights Agreement, dated as of April 1, 1997,
between the Registrant and the Shareholders named therein...
10.7(1) Sublease Agreement dated December 1995 between Century
Southwest Cable Television, Inc. and the Registrant.........
10.8(1) Business Loan Agreement dated April 30, 1996 between
Imperial Bank and the Registrant............................
10.9(1) * Distribution Agreement dated February 28, 1996 between the
Registrant and Ingram Micro Inc.............................
10.10(1)* Distribution Agreement dated March 1, 1996 between the
Registrant and Navarre Corporation..........................
10.11(1)* Distributor Contract dated March 20, 1996 between the
Registrant and Micro Central, Inc...........................
10.12(1) Form of Employment Agreements dated March 12, 1995 between
the Registrant and the Founders.............................
10.13(1) Loan Agreement dated June 22, 1994 between ICICI and the
Registrant..................................................
10.14(1) Form of Agreement dated August 26, 1996 between the
Registrant and certain executive officers...................
10.15(1) Form of Severance agreement between the Registrant and Brad
Kingsbury...................................................
10.16(1) Form of Severance agreement between the Registrant and
Charles M. Valentine........................................
10.17(4)* Software License and Distribution Agreement between the
Registrant and ServiceWare, Inc. dated September 30, 1997...
10.18* Agreement and Plan of Reorganization, dated as of April 1,
1997, by and among the Registrant, WS Acquisition Corp.,
Walk Softly, Inc. and certain Shareholders of Walk Softly,
Inc.........................................................
21.1 Subsidiaries of the Registrant..............................
23.1 Consent of Independent Auditors.............................
27.1 Financial Data Schedule.....................................
</TABLE>

(1) Incorporated by reference to the exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-11063) which was declared
effective on October 22, 1996.

(2) Incorporated by reference to the exhibits filed with the Registrant's
Current Report on Form 8-K filed on June 2, 1997.

(3) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.

(4) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 1997.

<PAGE> 1

EXHIBIT 10.6

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT is made as of April 1, 1997 by and
among CyberMedia Inc., a Delaware corporation (the "Acquiror") and the
Shareholders (as defined below).

RECITALS

WHEREAS, the Acquiror, Walk Softly, Inc., a California corporation, and
the shareholders listed on Exhibit A (the "shareholders" are parties to that
certain Agreement and Plan of Reorganization (the "Acquisition Agreement") dated
as of April __, 1997; and

WHEREAS, the issuance of Acquiror's Common Stock to the Shareholders in
the Acquisition Agreement is conditioned upon the registration rights being
extended to the Shareholders,

NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:

1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:

"Closing Date" shall mean the date of execution of this Agreement and
the Acquisition Agreement by the Acquiror and the Shareholders.

"Commission" shall mean the Securities and Exchange Commission of the
United States or any other U.S. federal agency at the time administering the
Securities Act.

"Common Stock" shall mean shares of the Acquiror's Common Stock.

"Holder" shall mean each of the Shareholders holding Registrable
Securities.

"Other Holders" shall mean holders of Company securities having
registration rights pursuant to the Amended and Restated Registration Rights
Agreement dated as of July 3, 1996, between Acquiror and the parties thereto.

"Registrable Securities" means (i) the Common Stock issued pursuant
to the Acquisition Agreement and (ii) any shares of Common Stock issued or
issuable in respect of such Common Stock upon any stock split, stock dividend,
recapitalization, or similar event; provided that none of such shares of Common
Stock are, at the time of Holders' exercise of any rights hereunder, subject to
a repurchase option in favor of Acquiror. Shares of Common Stock shall only be
treated as Registrable Securities if they have not been (A) sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction or (B) sold or, in the opinion of counsel to the Company, are
available for sale in a single transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.

-1-
<PAGE> 2
The terms "register, "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Acquiror in complying with Sections 2 and 3
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Acquiror (but not fees and disbursements of special counsel for Holders,
if any, that is not also counsel for the Acquiror), Blue Sky fees and expenses
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Acquiror which shall be paid in any event by the Acquiror).

"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, or any similar
United States federal statute.

"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
Holders.

2. COMPANY REGISTRATION.

(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:

(i) promptly give to each Holder written notice thereof, and

(ii) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting-involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Acquiror, by any Holder,

(b) Underwriting. If the registration of which the Acquiror gives
notice is for a registered public offering involving an underwriting, the
Acquiror shall so advise the Holders as a part of the written notice given
pursuant to Section 2(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall, together with the
Acquiror and Other Holders, if any, enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Acquiror. Notwithstanding any other provision of this Section 2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities and other securities to be included in such registration.
The Acquiror shall so advise all Holders and Other Holders and the number of
shares that may be included in the

-2-
<PAGE> 3

registration and underwriting by all Holders and Other Holders shall be
allocated among them, as nearly as practicable, first, to the Acquiror (or, if
applicable, to the holders for whose account the Acquiror is registering the
securities), second, among the Other Holders of securities in proportion to the
respective amounts of securities proposed to be included in the registration by
such Other Holders, and, third, among the Holders in proportion to the number of
Registrable Securities proposed to be included in such registration by such
Holders. If any Holder or Other Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Acquiror and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.

(c) Right to Terminate Registration. The Acquiror shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2 prior to the effectiveness of such registration whether or not any
Holder or has elected to include Registrable Securities in such registration.

3. REGISTRATION ON FORM S-3.

(a) Request for Registration. If any Holder or Holders request that
the Acquiror file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which would exceed
$500,000, and the Acquiror is a registrant entitled to use Form S-3 to register
the Registrable Securities for such an offering, the Acquiror shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request. The substantive
provisions of Section 2(b) shall be applicable to each registration initiated
under this Section 3.

(b) Limitations. Notwithstanding the foregoing, the Acquiror shall
not be obligated to take any action pursuant to this Section 3:(i) in any
particular jurisdiction in which the Acquiror would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Acquiror is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii) if
the Acquiror, within ten (10) days of the receipt of the request of the
initiating Holders, gives notice of its bona fide intention to effect the filing
of a registration statement with the Commission within thirty (30) days of
receipt of such request (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities), (iii) during the period starting with the date thirty (30) days
prior to the Acquiror's estimated date of filing of, and ending on the date six
(6) months immediately following, the effective date of any registration
statement pertaining to securities of the Acquiror (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Acquiror is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(iv) if the Acquiror shall furnish to such Holder a certificate signed by the
President of the Acquiror stating that in the good faith judgment of the Board
of Directors it would be seriously detrimental to the Acquiror or its
shareholders for registration

-3-
<PAGE> 4

statements to be filed in the near future. then the Acquiror's obligation to use
its best efforts to file a registration statement shall be deferred for a period
not to exceed sixty (60) days from the receipt the request to file such
registration by such Holder, provided, however, that the Acquiror shall not
utilize this right more than once in any twelve (12) month period, (v) after
December 31, 1997 with respect to any Holder who is eligible to sell all of his
Registrable Securities Under Rule 144 of the Securities Act within any three (3)
month period or (vi) more than once in any twelve (12) month period, and (vi)
after the Acquired has effected two (2) registration statements pursuant to this
Section 3.

4. Expenses of Registration.

(a) Registration Expenses. The Acquiror shall bear all Registration
Expenses incurred in connection with all registrations pursuant to Section 2 and
Section 3.

(b) Selling Expenses. Unless otherwise stated, all Selling Expenses
relating to securities registered on behalf of the Holders and Other Holders
shall be borne by the Holders and Other Holders pro rata on the basis of the
number of shares so registered.

5. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Acquiror pursuant to this Agreement,
the Acquiror will:

(a) keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof,

(b) prepare and file with the Commission a registration statement and
any amendments thereto with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
one hundred twenty (120) days or until the distribution described in the
Registration Statement has been completed; and

(c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.

6. Indemnification.

(a) By Acquiror. The Acquiror will indemnify each Holder with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or

-4-
<PAGE> 5

based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation or alleged violation by the Acquiror of the Securities Act, or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any rule or
regulation promulgated under the Securities Act or the 1934 Act applicable to
the Acquiror in connection with any such registration, qualification or
compliance, and the Acquiror will reimburse each such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Acquiror will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Acquiror by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
If the Holders are represented by counsel other than counsel for the Acquiror,
the Acquiror will not be obligated under this Section 6(a) to reimburse legal
fees and expenses of more than one separate counsel for Holders.

(b) By Holders. Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Acquiror, each of
its directors and officers, each underwriter, if any, of the Acquiror's
securities covered by such a registration statement, each person who controls
the Acquiror or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, against all claims, losses, damages
and liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Acquiror, such Holders for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Acquiror by an
instrument duly executed by such Holder and stated to be specifically for use
therein. Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the public offering price
of the shares sold by such Holder, unless such registration liability arises out
of or is based on willful conduct by such Holder.

(c) Procedures. Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in

-5-
<PAGE> 6
such defense at such party's expense, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.

7. Information by Holder. Holders including any Registrable Securities
in any registration shall furnish to the Acquiror such information regarding
such Holders as shall be necessary to enable the Acquiror to comply with the
provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement.

8. Restrictive Legend. Each certificate representing Registrable
Securities shall be stamped or otherwise imprinted with a legend substantially
in the following form, in addition to any legend that may now or hereafter be
required by the California Department of Corporations or any other state
securities law or regulation:

"THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS ON SALE, TRANSFER, AND HYPOTHECATION AS SET FORTH IN A
REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER CORPORATION AND THE
REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST. COPIES
OF SUCH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER
CORPORATION AND WILL BE FURNISHED UPON REQUEST TO SUCH REGISTERED
HOLDER.

9. Miscellaneous.

(a) Governing Law. This Agreement will be governed by and construed
under the laws of California as applied to agreements among California residents
entered into and to be performed entirely within California.

(b) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Acquiror and the Holders of a majority of the
Registrable Securities, voting as a class. Any amendment or waiver effected in
accordance with this paragraph will be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities and the Acquiror.

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<PAGE> 7

(c) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegally
invalid, unenforceable or void, this Agreement shall continue in full force and
effect without said provision. In such event, the parties shall negotiate, in
good faith, a legal, valid and binding substitute provision which most nearly
effects the intent of the parties in entering into this Agreement.

(d) Notices. All notices to Holders will be mailed by registered or
certified mail to the addresses maintained in the Acquiror's records for such
Holders. Notices will be effective three (3) days after deposit in the U.S.
Mail.

(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

(f) Titles, Subtitles and Table of Contents. The titles, subtitles
and table of contents used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement.

-7-
<PAGE> 8

IN WITNESS WHEREOF. the parties have executed this Registration Rights
Agreement as of the date first above written.

ACQUIROR

CYBERMEDIA, INC.

By: [SIG]
-------------------------------------
Name:
Title:

SHAREHOLDERS

MARK CARLSON

/s/ [SIG]
-----------------------------------------
MARK KLEIN

/s/ [SIG]
-----------------------------------------
DANA KEEN

FENWICK & WEST

By: /s/ [SIG]
-------------------------------------
Name: MICHAEL PATRICK
Title: Partner

-9-

<PAGE> 1
EXHIBIT 10.18

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

CYBERMEDIA, INC.,

WS ACQUISITION CORP.,

WALK SOFTLY, INC.

AND

CERTAIN SHAREHOLDERS

OF WALK SOFTLY, INC.

Dated as of April 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I

THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 No Further Ownership Rights in Company Common Stock . . . . . . . . . . . . . . . . . . . . . 5
1.10 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.11 Tax and Accounting Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.12 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Company Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8 Tax and Other Returns and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment . . . . . . . . 10
2.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.12 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.13 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.16 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.17 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.19 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.20 Complete Copies of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.21 Binding Agreements; No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.22 Representations Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.23 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.24 Investment Representations and Covenants of Shareholders . . . . . . . . . . . . . . . . . . . 15
</TABLE>

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<PAGE> 3

TABLE OF CONTENTS
(continued)

<TABLE>
<S> <C>
ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 SEC Documents; Parent Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.6 Representations Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.8 Broker's and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.9 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE IV

CONDUCT PRIOR TO THE EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Conduct of Business of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

ARTICLE V

ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Resolutions of Company Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.5 Pooling Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.7 FIRPTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9 Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.10 Best Efforts; Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . . 24
5.11 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.13 Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.14 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE VI

CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Conditions to Obligations of Each Party to Effect the Merger. . . . . . . . . . . . . . . . . 26
6.2 Additional Conditions to Obligations of Company. . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>

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<PAGE> 4

TABLE OF CONTENTS
(continued)

<TABLE>
<S> <C>
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. . . . . . . . . . . . . . . 27

ARTICLE VII

SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 29
7.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.2 Agreement to Indemnify . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Expiration of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Termination of Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.6 Protection of Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.7 Distributions; Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.8 Claims Upon Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.9 Objections to Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.10 Resolution of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.11 Distribution Upon Termination of Escrow Period . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Agent of the Shareholders; Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.13 Actions of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.14 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.15 Escrow Agent's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.16 No Joint Liability; Maximum Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.17 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.18 Exchange of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE IX

GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.6 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.7 Resolution of Disputes; Stipulation Regarding Confidentiality . . . . . . . . . . . . . . . . 39
9.8 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>

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<PAGE> 5
INDEX OF EXHIBITS

Exhibit Description

Exhibit A List of Shareholders Who Are Party to this Agreement

Exhibit B Form of Stock Restriction Letter

Exhibit C Form of Merger Agreement

Exhibit D Form of Registration Rights Agreement

Exhibit E-1 Form of Employment and Non-Confidentiality Agreement

Exhibit E-2 Form of Employment and Non-Confidentiality Agreement
with Mark Klein

Exhibit F Form of Walk Softly Affiliate Agreement

Exhibit G Form of Continuity of Interest Representation Letter

Exhibit H Form of Legal Opinion of Wilson Sonsini Goodrich &
Rosati, Professional Corporation

Exhibit I Form of Legal Opinion of Fenwick & West LLP

Exhibit J Company Disclosure Schedule

Exhibit K Tax Representation Certificate

Schedules

-iv-
<PAGE> 6

AGREEMENT AND PLAN OF REORGANIZATION

This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of April 1, 1997 among CyberMedia, Inc., a Delaware
corporation ("Parent"), WS Acquisition Corp., a Delaware corporation ("Merger
Sub") and a wholly owned subsidiary of Parent, Walk Softly, Inc., a California
corporation (the "Company") and certain shareholders (the "Shareholders") of
the Company listed on Exhibit A attached hereto. The Shareholders are parties
to this Agreement solely to the extent of Article VII and for no other purpose.
The representations, warranties and covenants of the Company set forth in
Articles II, IV and V are not representations, warranties or covenants of any
of the Shareholders. In addition to signing this Agreement as a Shareholder,
Mark Carlson is signing on behalf of the Company and as Agent for the
Shareholders.

RECITALS

A. The Boards of Directors of each of the Company, Parent and
Merger Sub believe it is in the best interests of each company and their
respective stockholders and shareholders that the Company and Merger Sub
combine into a single company through the statutory merger of Merger Sub with
and into the Company (the "Merger") and, in furtherance thereof, have approved
the Merger.

B. Pursuant to the Merger, among other things, the outstanding
shares of Common Stock of the Company ("Company Common Stock") shall be
converted into shares of Common Stock of Parent ("Parent Common Stock") at the
rate determined herein.

C. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.

D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").

E. Concurrently herewith, the Shareholders have agreed to enter
into, execute and deliver to Parent stock restriction agreements, substantially
in the form attached hereto as Exhibit B, pursuant to which each Shareholder
agrees to place such restrictions on the shares of Parent Common Stock to be
received by such Shareholder pursuant to this Agreement as currently exists on
the shares of Company Common Stock owned by such Shareholder prior to the
Closing Date.

NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:

<PAGE> 7

ARTICLE I

THE MERGER

1.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the Merger
Agreement attached hereto as Exhibit C (the "Merger Agreement") the applicable
provisions of the California Corporations Code ("California Law"), and the
applicable provision of Delaware Law ("Delaware Law;" Delaware Law and
California Law, collectively, "Applicable Law") Merger Sub shall be merged with
and into the Company, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."

1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing the Merger Agreement
with the Secretaries of State of the States of California and Delaware, in
accordance with the relevant provisions of Applicable Law (the time of the
later of such filing being the "Effective Time"). The Closing of the
transaction contemplated hereby (the "Closing") shall take place at 7:00 p.m.
at the offices of Wilson Sonsini Goodrich & Rosati, P.C. on April 1, 1997, or
at such other time, date and location as the parties hereto agree (the "Closing
Date").

1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Merger Agreement and the
applicable provisions of Applicable Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.

1.4 Articles of Incorporation; Bylaws.

(a) At the Effective Time the Articles of Incorporation
of Company, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation.

(b) The Bylaws of Company, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.

1.5 Directors and Officers. The initial directors of the
Surviving Corporation shall be Unni S. Warrier provided however, that the
Bylaws shall be deemed amended effective as of the Effective Time to provide
that the authorized number of directors shall be one (1), to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation. The initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected

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<PAGE> 8

or appointed and qualified, shall be: Unni S. Warrier, Chief Executive
Officer; Jeff Beaumont, Chief Financial Officer; and Arthur F. Schneiderman,
Secretary.

1.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:

(a) Conversion of Company Common Stock. Each share of
common stock, no par value, of the Company (the "Company Common Stock") issued
and outstanding immediately prior to the Effective Time (other than any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a))
will be canceled and extinguished and be converted automatically into the right
to receive [ ] shares (the "Exchange Ratio") of common stock, par value
$0.01 per share, of the Parent (the "Parent Common Stock").

(b) Stock Options. At the Effective Time, all options to
purchase Company Common Stock then outstanding under the Company's 1996 Equity
Incentive Plan (the "Company Stock Option Plan") shall be assumed by Parent in
accordance with Section 5.11.

(c) Capital Stock of Merger Sub. Each share of common
stock, $0.001 par value, of Merger Sub issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, no par value, of
the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.

(d) Adjustments to Exchange Ratio. The Exchange Ratio
shall be adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock or
Company Common Stock occurring after the date hereof and prior to the Effective
Time.

(e) Fractional Shares. No fraction of a share of Parent
Common Stock will be issued, but in lieu thereof each holder of shares of
Company Common Stock who would otherwise be entitled to a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall receive from Parent an amount
of cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of a share of Parent
Common Stock for the ten most recent days that Parent Common Stock has traded
ending on the trading day immediately prior to the Effective Time, as reported
on the NASDAQ National Market System.

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<PAGE> 9
1.7 Dissenting Shares.

(a) Notwithstanding any provision of this Agreement to
the contrary, any shares of capital stock of the Company held by a holder who
has exercised dissenters' rights for such shares in accordance with California
Law and who, as of the Effective Time, has not effectively withdrawn or lost
such dissenters rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive Parent Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by
California Law.

(b) Notwithstanding the provisions of subsection (a), if
any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) his or her dissenters' rights, then, as of the
later of the Effective Time or the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive Parent Common Stock and payment for fractional shares as provided in
Section 1.6, without interest thereon, upon surrender of the certificate
representing such shares.

(c) The Company shall give Parent (i) prompt notice of
any written demand received by the Company to require the Company to purchase
shares of the Company's Common Stock pursuant to the applicable provisions of
California law and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to any such demands or offer to settle or settle any such demands.

1.8 Surrender of Certificates.

(a) Exchange Agent. Wilson Sonsini Goodrich & Rosati
shall act as exchange agent (the "Exchange Agent") in the Merger.

(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as Parent
may adopt, the shares of Parent Common Stock issuable pursuant to Section 1.6
in exchange for outstanding shares of Company Common Stock.

(c) Exchange Procedures. At or before the Effective
Time, each holder of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock shall surrender to the Exchange Agent for cancellation the
Certificates, duly endorsed to Parent or accompanied by duly executed stock
powers and assignments separate from certificate transferring title to such
shares to Parent. Promptly after the Effective Time, and against receipt of
such Certificates, the Exchange Agent shall issue to each tendering holder of a
Certificate a certificate for the number of shares of Parent Common Stock to
which such holder is entitled and payment in lieu of fractional shares pursuant
to Section 1.6 hereof and the Certificate so surrendered shall forthwith be
cancelled.

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<PAGE> 10

To the extent that any holder of a Certificate does not so surrender
such Certificate at or before the Effective Time, then promptly after the
Effective Time, the Surviving Corporation shall cause to be mailed to each
holder of record of a Certificate or Certificates, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock. Upon surrender of a Certificate for cancellation to
the Exchange Agent after the Effective Time, or to such other agent or agents
as may be appointed by Parent, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock and
payment in lieu of fractional shares which such holder has the right to receive
pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding certificate that, prior to
the Effective Time, represented shares of Company Common Stock will be deemed
from and after the Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Common Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.

(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock.

(e) Transfers of Ownership. If any certificate for
shares of Parent Common Stock is to be issued in a name other than that in
which the certificate surrendered in exchange therefor is registered, it will
be a condition of the issuance thereof that the certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for shares of Parent Common Stock in any name other than that
of the registered holder of the certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been
paid or is not payable.

(f) No Liability. Notwithstanding anything to the
contrary in this Section 1.8, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to a holder of shares of Parent
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.

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<PAGE> 11
1.9 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.

1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock and cash for
fractional shares, if any, as may be required pursuant to Section 1.6;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to the certificates alleged to have been lost,
stolen or destroyed.

1.11 Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall (a) constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended and (b)
qualify for accounting treatment as a pooling of interests. The parties shall
not take a position on any tax returns inconsistent with this Section 1.11. In
addition, Parent and Merger Sub agree to execute a tax representation
certificate consistent with this treatment of the Merger in the form attached
hereto as Exhibit K.

1.12 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful
and necessary action, so long as such action is consistent with this Agreement.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Parent and Merger Sub, subject
to the exceptions set forth in the Company Disclosure Schedule attached hereto
as Exhibit J (the "Disclosure Schedule"), as follows:

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<PAGE> 12

2.1 Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has the corporate power to own its property
and to carry on its business as now being conducted and as proposed to be
conducted by the Company. The Company is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition, results of
operations or prospects ("Material Adverse Effect") of the Company. The
Company has delivered a true and correct copy of its Articles of Incorporation
and Bylaws, each as amended to date, to counsel for Parent.

2.2 Company Capital Structure. The authorized capital stock of
the Company consists of 10,000,000 shares of Common Stock, no par value, and
2,000,000 shares of Preferred Stock, no par value. There are 1,796,250 shares
of the Company Common Stock issued and outstanding held by the persons, and in
the amounts, set forth on Exhibit A-1. There are no shares of the Company
Preferred Stock issued and outstanding. At the time of the Closing, such list
shall have been appropriately adjusted to reflect option exercises and stock
repurchases since the date hereof. All outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid and non-assessable and
not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of the Company or any agreement to which the Company is
a party or by which it is bound. The Company has reserved 500,000 shares of
Common Stock for issuance to employees and consultants pursuant to the Company
Stock Option Plan, of which no shares have been exercised, and 365,000 shares
are subject to outstanding, unexercised options (the "Options"). The holders
of the Options are listed on Exhibit A-1 hereto. There are no other options,
warrants, calls, rights, commitments or agreements of any character to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement.

2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
business entity.

2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger by the Company's shareholders as contemplated by
Section 6.1(a). This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company. The
execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give

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<PAGE> 13

rise to a right of termination, cancellation or acceleration of any obligation
or loss of any benefit under (i) any provision of the Articles of
Incorporation, as amended, or Bylaws of the Company or (ii) any other material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity"), is
required by or with respect to the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the California
Secretary of State, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country and (iii)
such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a Material Adverse Effect on the
Company.

2.5 Company Financial Statements. Section 2.5 of the Company
Disclosure Schedule includes the Company's unaudited balance sheet as of March
24, 1997 (the "Company Balance Sheet").

2.6 No Undisclosed Liabilities. The Company does not have any
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are material and (i) have not been reflected in the Company
Balance Sheet, (ii) have not been specifically described in this Agreement or
in the Company Schedules or (iii) are not normal or recurring liabilities
incurred since March 24, 1997 in the ordinary course of business consistent
with past practices.

2.7 No Changes. Since the date of the Company Balance Sheet there
has not been, occurred or arisen any:

(a) material adverse change in the financial condition,
liabilities, assets, business, or prospects of the Company;

(b) amendments or changes in the Articles of
Incorporation or Bylaws of the Company;

(d) destruction, damage to, or loss of any assets of the
Company (whether or not covered by insurance) that constitutes a Material
Adverse Effect on the Company;

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<PAGE> 14

(e) labor trouble or claim of wrongful discharge of which
the Company has received written notice or of which the Company is aware, or
other unlawful labor practice or action;

(f) change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company;

(g) revaluation by the Company of any of its assets;

(h) declaration, setting aside, or payment of a dividend
or other distribution with respect to the shares of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any of
its shares;

(i) increase in the salary or other compensation payable
or to become payable by the Company to any of its officers, directors or
employees, or the declaration, payment, or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;

(j) acquisition, sale or transfer of any material asset
of the Company other than in the ordinary course of business;

(k) amendment or termination of any material contract,
agreement or license to which the Company is a party;

(l) loan by the Company to any person or entity, or
guaranty by the Company of any loan;

(m) waiver or release of any material right or claim of
the Company, including any write-off or other compromise of any account
receivable of the Company;

(n) the commencement or notice or threat of commencement
of any governmental proceeding against or investigation of the Company or its
affairs, to the best of the Company's knowledge;

(o) other event or condition of any character that has or
might reasonably be expected to have a Material Adverse Effect on the Company;

(p) issuance or sale by the Company of any of its shares
or of any other of its securities except for issuances or sales as a result of
exercises of stock options granted under the Company Stock Option Plan or
rights previously granted to purchase shares of the Company's capital stock;

(q) change in pricing or royalties set or charged by the
Company; or

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<PAGE> 15
(r) negotiation or agreement by the Company to do any of
the things described in the preceding clauses (a) through (p) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).

2.8 Tax and Other Returns and Reports.

(a) Definition of Taxes. For the purposes of this
Agreement, "Tax" or, collectively, "Taxes," means any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements
or arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.

(b) Tax Returns and Audits.

(i) The Company as of the Closing Date will have
prepared and timely filed or made a timely request for extension for all
required federal, state, local and foreign returns, estimates, information
statements and reports (collectively the "Returns") relating to any and all
Taxes concerning or attributable to the Company or its operations and such
Returns are true and correct and have been completed in accordance with
applicable law.

(ii) The Company as of the Closing Date: (A) will
have paid or accrued all Taxes it is required to pay or accrue and (B) will
have withheld and timely remitted with respect to its employees all federal and
state income taxes, FICA, FUTA and other Taxes required to be withheld and
remitted.

(iii) To the best of the Company's knowledge, there
are no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes other than Liens for taxes not yet due and payable.

(iv) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is properly reflected on the Company's tax books and
records.

2.9 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company, any acquisition of
property by the Company or the conduct of business by the Company as currently
conducted or as currently proposed to be conducted.

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<PAGE> 16
2.10 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment.

(a) The Company neither owns nor leases any real
property.

(b) The Company has good and valid title to, or, in the
case of leased properties and assets, valid leasehold interests in, all of its
material tangible properties and assets, real, personal and mixed, used in its
business, free and clear of any liens, charges, pledges, security interests or
other encumbrances except for such imperfections of title and encumbrances, if
any, which are not substantial in character, amount or extent, and which do not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.

(c) Section 2.10(c) set forth all equipment (the
"Equipment") owned or leased by the Company except equipment with an aggregate
value of less than $50,000. The Equipment is, taken as a whole, (i) adequate
for the conduct of the business of the Company consistent with its past
practice, (ii) suitable for the uses to which it is currently employed, (iii)
in good operating condition, (iv) regularly and properly maintained, and (v)
not obsolete, dangerous or in need of renewal or replacement, except for
renewal or replacement in the ordinary course of business.

2.11 Intellectual Property. The Company owns, or is licensed or
otherwise entitled to use rights to, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, computer software programs or applications
and tangible or intangible proprietary information or material that are used or
currently proposed to be used in the business of the Company as currently
conducted (the "Company Intellectual Property Rights"). Section 2.11 of the
Company Disclosure Schedule sets forth and and all patents, trademarks,
registered and material unregistered copyrights, trade names and service marks,
and any applications therefor, included in the Company Intellectual Property
Rights, and specifies the jurisdictions in which each such Company Intellectual
Property Right has been issued or registered or in which an application for
such issuance and registration has been filed, including the respective
registration or application numbers and the names of all registered owners,
together with a list of all of the Company's currently marketed software
products and an indication as to which, if any, of such software products have
been registered for copyright protection with the United States Copyright
Office and any foreign offices and by whom such items have been registered.
The Company has received no requests to make any such registration and the
Company is not a party to any material licenses, sublicenses and other
agreements and pursuant to which the Company or any other person is authorized
to use any Company Intellectual Property Right or other trade secret material
to the Company. The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any license, sublicense or agreement described in
Section 2.11 of the Company Disclosure Schedule. The Company is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), the Company Intellectual
Property Rights, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect thereof) to the
use thereof or the material covered thereby in connection with the services or
products in respect of which the Company Intellectual Property Rights are being
used.

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<PAGE> 17

To the best of the Company's knowledge, no claims with respect to the Company
Intellectual Property Rights have been asserted or, to the knowledge of the
Company, are threatened by any person, nor does the Company know of any valid
grounds for any bona fide claims (i) to the effect that the manufacture, sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by the Company infringes on any copyright, patent, trade
mark, service mark or trade secret, (ii) against the use by the Company of any
trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the Company's
business as currently conducted or as proposed to be conducted, or (iii)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property Rights. To the Company's knowledge, all registered
trademarks, service marks and copyrights held by the Company are valid and
subsisting. To the Company's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company. The Company (i) has not, to its best knowledge, been sued or charged
in writing as a defendant in any claim, suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party and which has not been finally terminated prior to the date hereof,
(ii) has no knowledge of any such charge or claim or (iii) has no knowledge of
any infringement liability with respect to, or infringement or violation by,
the Company of any patent, trademark, service mark, copyright, trade secret or
other proprietary right of another. To the best of the Company's knowledge, no
Company Intellectual Property Right is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing thereof by the Company. The Company has not entered into any
agreement to indemnify any other person against any charge of infringement of
any Company Intellectual Property Right. Each employee of and consultant to
the Company has signed a Proprietary Rights and Confidentiality Agreement in
the Company's standard form as certified by the Company and delivered to
Parent.

2.12 Agreements, Contracts and Commitments. Except as disclosed in
Section 2.12 of the Company Disclosure Schedule, the Company does not have and
is not a party to:

(a) any collective bargaining agreements,

(b) any agreements that contain any unpaid severance
liabilities or obligations,

(c) any bonus, deferred compensation, incentive
compensation, pension, profit-sharing or retirement plans, or any other
employee benefit plans or arrangements,

(d) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization, not terminable by the Company on thirty days notice without
liability, except to the extent general principles of wrongful termination law
may limit the Company's ability to terminate employees at will,

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(e) agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,

(f) any fidelity or surety bond or completion bond,

(g) any lease of personal property having a value
individually in excess of $50,000,

(h) any agreement of indemnification or guaranty not
entered into in the ordinary course of business,

(i) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or compete with any person,

(j) any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of $50,000,

(k) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise,

(l) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (h) hereof,

(m) any purchase order or contract for the purchase of
raw materials or acquisition of assets involving $50,000 or more,

(n) any construction contracts,

(o) any distribution, joint marketing or development
agreement,

(p) any other agreement, contract or commitment which
involves $50,000 or more and is not cancelable without penalty within thirty
(30) days, or

(q) any agreement which is otherwise material to the
Company's business.

The Company has not breached, or received in writing any claim or
threat that it has breached, any of the terms or conditions of any material
agreement, contract or commitment to

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<PAGE> 19

which it is bound (including those set forth in any of the lists separately
certified by the Company) in such manner as would permit any other party to
cancel or terminate the same.

2.13 Interested Party Transactions. Except as disclosed in Section
2.13 of the Company Disclosure Schedule, no officer or director of the Company
or person who owns at least ten percent (10%) of the outstanding stock of the
Company (nor any parent, child or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any
entity which furnished or sold, or furnishes or sells, services or products
which the Company furnishes or sells, or proposes to furnish or sell, or (ii)
any interest in any entity which purchases from or sells or furnishes to, the
Company, any goods or services, or (iii) a beneficial interest in any contract
or agreement described in Section 2.12; provided, that ownership of no more
than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for purposes of
this Section 2.13.

2.14 Governmental Authorization. Section 2.14 of the Company
Disclosure Schedule accurately lists each material federal, state, county,
local or foreign governmental consent, license, permit, grant, or other
authorization issued to the Company (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "Company Authorizations"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its
business or hold any interest in its properties.

2.15 Litigation. To the best of the Company's knowledge, there is
no action, suit, claim or proceeding of any nature pending, or to the Company's
knowledge, threatened against the Company, its properties or any of its
officers or directors, in their capacities as agents of the Company. To the
best of the Company's knowledge, there is no investigation pending or, to the
Company's knowledge, threatened against the Company, its properties or any of
its officers or directors, in their capacities as agents of the Company by or
before any governmental entity. To the best of the Company's knowledge, no
governmental entity has at any time challenged or questioned the legal right of
the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.

2.16 Minute Books. The minute books of the Company made available
to counsel for Parent contain complete and accurate minutes of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of the Company.

2.17 Brokers' and Finders' Fees. The Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.

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<PAGE> 20
2.18 Insurance. The Company has no insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company.

2.19 Compliance With Laws. Except as disclosed in Section 2.19 of
the Company Disclosure Schedule, and except as to matters of which the Company
is not aware and which do not either individually or in the aggregate result in
a Material Adverse Effect with respect to the Company, the Company has complied
with, is not in violation of, and has not received any notices of violation
with respect to, any federal, state or local statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business.

2.20 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document (or summaries of same)
which has been requested by Parent or its counsel.

2.21 Binding Agreements; No Default. Each of the contracts,
agreements and other instruments shown on the Exhibits or on any lists or
statements set forth in the Company Disclosure Schedule to which the Company is
a party is a legal, binding, and enforceable obligation by or against the
Company (assuming such contract, agreement or instrument has been duly
authorized, executed and delivered by the other party(ies) thereto and except
to the extent that its non-enforceability would not have a Material Adverse
Effect on the Company), and no party with whom the Company has an agreement or
contract is, to the Company's knowledge, in material default thereunder or has
breached any material terms or provisions thereof (subject to all applicable
bankruptcy, insolvency, reorganization and other laws applicable to creditors'
rights and remedies and to the exercise of judicial discretion in accordance
with general principles of equity).

2.22 Representations Complete. None of the representations or
warranties made by the Company, nor any statement made in any list or other
statement separately certified by the Company, Exhibit or certificate furnished
by the Company pursuant to this Agreement, when all such documents are read
together in their entirety, contains or will contain any untrue statement of a
material fact at the Effective Time, or omits or will omit to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.

2.23 Third Party Consents. No consent or approval is needed from
any third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.

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<PAGE> 21
ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub represent and warrant to the Company, subject to
the exceptions previously certified in writing by Parent or Merger Sub, as
follows:

3.1 Organization, Standing and Power. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent and Merger Sub has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on Parent and Merger Sub
taken as a whole. Parent has delivered a true and correct copy of the
Certificate or Articles of Incorporation and Bylaws of each of Parent and
Merger Sub, as amended to date, to counsel for the Company.

3.2 Capital Structure.

(a) The authorized stock of Parent consists of 60,000,000
shares of Common Stock, $.01 per share par value of which 11,882,140 shares
were issued and outstanding as of March 20, 1997, and 2,000,000 shares of
Preferred Stock, none of which are issued or outstanding as of March 20, 1997.
The authorized capital stock of Merger Sub consists of 1,000 shares of Common
Stock, no par value, 1,000 shares of which, as of the date hereof, are issued
and outstanding and are held by Parent. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon
the holders thereof. Parent has also reserved (i) 3,902,000 shares of Common
Stock for issuance to employees and consultants pursuant to the Parent's
Amended 1993 Stock Plan, (ii) 50,000 shares of Common Stock for issuance to
directors under its 1996 Director Stock Option Plan and, (iii) an aggregate of
100,000 shares of Common Stock for issuance under the 1996 Employee Stock
Purchase Plan There are no other options, warrants, calls, rights, commitments
or agreements of any character to which Parent is a party or by which it is
bound obligating Parent to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Parent or obligating Parent to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.

(b) The shares of Parent Common Stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid,
non-assessable.

3.3 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have

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<PAGE> 22

been duly authorized by all necessary corporate action on the part of Parent
and Merger Sub. The stockholders of Parent are not required to approve the
Merger, the Agreement or the transactions contemplated hereby under applicable
law or NASD rules or regulations. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit under (i) any provision of the Certificates of Incorporation or Bylaws
of Parent and Merger Sub or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Parent and Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the California
and Delaware Secretaries of State, (ii) any filings as may be required under
applicable state and federal securities laws and the laws of any foreign
country, and (iii) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on Parent.

3.4 SEC Documents; Parent Financial Statements. Parent has
furnished the Company with a true and complete copy of the following documents
(collectively, the "SEC Documents"): (i) Form S-1/A, filed with the Securities
and Exchange Commission (the "SEC") on October 22 1996; (ii) Form 424B4, filed
with the SEC on October 23, 1996; (iii) Form 10-Q, filed with the SEC on
November 12, 1996; (iv) Form S-8, filed with the SEC on January 21, 1997; and
(v) Form 10-K, filed with the SEC on March 31, 1997. As of their respective
filing dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act of 1934, as amended or the Securities Act of
1933, as amended (the "Act") when filed, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading, except to the extent corrected by a subsequently filed SEC
Document. The financial statements of Parent, including the notes thereto,
included in the SEC Documents (the "Parent Financial Statements") are complete
and correct in all material respects, comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC). The Parent Financial
Statements fairly present the consolidated financial condition and operating
results of Parent at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, year-end adjustments,
which will not be material in the aggregate). There has been no change in
Parent accounting policies except as described in the notes to the Parent
Financial Statements. Parent has no material obligations other than (i) those
set forth in the Parent Financial

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<PAGE> 23

Statements and (ii) those not required to be set forth in the Parent Financial
Statements under generally accepted accounting principles.

3.5 No Material Adverse Change. Since the date of the balance
sheet included in the Parent's most recently filed report on Form 10-K or Form
10-Q furnished to the Company as set forth in Section 3.4, Parent has conducted
its business in the ordinary course and there has not occurred: (a) any
material adverse change in the financial condition, liabilities, assets,
business, or prospects of Parent; (b) any amendments or changes in the
Certificate of Incorporation or Bylaws of Parent; (c) any damage to,
destruction or loss of any assets of the Parent, (whether or not covered by
insurance) that materially and adversely affects the financial condition,
business or prospects of Parent; or (d) any sale of a material amount of
property of Parent, except in the ordinary course of business.

3.6 Representations Complete. None of the SEC Documents and none
of the representations or warranties made by Parent herein, nor any statement
made in any list or other statement separately certified by Parent, or in any
Exhibit or certificate furnished by Parent pursuant to this Agreement, when all
such documents are read together in their entirety, contains or will contain
any untrue statement of a material fact at the Effective Time, or omits or will
omit to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which
made, not misleading.

3.7 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent has received any
notice of assertion or as to which Parent has a reasonable basis to expect such
notice of assertion, against Parent which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement or which could reasonably be anticipated to have a Material
Adverse Effect on Parent.

3.8 Broker's and Finders' Fees. Parent has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement, the Merger or any transaction contemplated hereby.

3.9 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Parent or any of
its subsidiaries which has or could reasonably be expected to materially limit
Parent's ability to exploit for commercial purposes the Company's products and
technology.

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<PAGE> 24

ARTICLE IV

CONDUCT PRIOR TO THE EFFECTIVE TIME

4.1 Conduct of Business of the Company. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing), to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and taxes when due subject (i)
to good faith disputes over such debts or taxes and (ii) in the case of taxes,
to Parent's consent to the filing of material Returns if applicable, to pay or
perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practice and policies
to preserve intact the Company's present business organizations, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, to the end that the Company's
goodwill and ongoing businesses shall be unimpaired at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence not in the
ordinary course of business of the Company which could have a Material Adverse
Effect on the Company. Except as expressly contemplated by this Agreement, the
Company shall not, without the prior written consent of Parent:

(a) Except pursuant to existing contractual provisions of
options outstanding on the date hereof and which are disclosed in writing
pursuant to Section 2.2, accelerate, amend or change the period of
exercisability of options or restricted stock granted under the employee stock
plans of the Company or authorize cash payments in exchange for any options
granted under any of such plans;

(b) Enter into any commitment or transaction (i) which
requires performance over a period longer than six months in duration except
transactions in the ordinary course of business, or (ii) to purchase fixed
assets for a purchase price in excess of $50,000; except as mutually agreed by
Parent and the Company and set forth on a separate certificate;

(c) Grant any severance or termination pay (i) to any
director or officer or (ii) to any other employee except (x) payments made
pursuant to standard written agreements outstanding on the date hereof and as
disclosed on Schedule 2.12 or (y) in the case of employees who do not have
standard written agreements, payments of up to two months salary;

(d) Transfer to any person or entity any rights to the
Company's Intellectual Property other than nonexclusive object code licenses
except as mutually agreed by Parent and the Company and set forth on a separate
certificate;

(e) Enter into or amend any agreements pursuant to which
any other party is granted marketing or other rights of any type or scope with
respect to any products or technology of

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<PAGE> 25
the Company, except as mutually agreed by Parent and the Company and set forth
on a separate certificate;

(f) Violate, amend or otherwise modify the terms of any
of the contracts set forth in the Company Disclosure Schedule;

(g) Commence any litigation;

(h) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of the Company, or repurchase
or otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to the Company;

(i) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities, other than the repurchase of shares of the Company's Common Stock
from terminated employees pursuant to the terms of restricted stock purchase
agreements and the issuance of shares of the Company's Common Stock pursuant to
the exercise of Company Incentive Options (as defined below) outstanding as of
the date of this Agreement;

(j) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;

(k) Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the business of the Company;

(l) Sell, lease, license or otherwise dispose of any of
its properties or assets which are material, individually or in the aggregate,
to the business of the Company, except in the ordinary course of business,
except as mutually agreed by Parent and the Company and set forth on a separate
certificate;

(m) Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others except with respect to an
existing lease line in an amount not more than $50,000;

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<PAGE> 26
(n) Adopt or amend any employee benefit plan, or enter
into any employment contract except for offer letters in the Company's standard
form for newly hired employees, pay any special bonus or special remuneration
to any director or employee, or increase the salaries or wage rates of its
employees;

(o) Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;

(p) Pay, discharge or satisfy in an amount in excess of
$50,000 in any one case any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the Company Financial Statements (or the notes
thereto);

(q) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, file any
material Return or any amendment to a material Return, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or

(r) Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) through (q) above, or any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its covenants hereunder.

4.2 No Solicitation. After the date of this Agreement and prior
to the Effective Date, the Company will not (nor will the Company permit any of
the Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees:

(a) solicit, encourage, initiate or participate in any
negotiations or discussions with respect to, any offer or proposal to acquire
all or substantially all of the Company's business and properties or to
purchase or acquire capital stock of the Company whether by merger, purchase of
assets, tender offer or otherwise (an "Acquisition"),

(b) disclose any information not customarily disclosed to
any person other than its attorneys or financial advisors concerning the
Company's business and properties or afford to any person or entity access to
its properties, books or records, or

(c) assist or cooperate with any person to make any
proposal to purchase all or any part of the Company's capital stock or assets,
other than licensing of software in the ordinary course of business (a
"Purchase"), provided, however, that the Company may participate in
negotiations with, or furnish information to, a party other than Parent or its
designees who has made a written Acquisition or Purchase offer or proposal if
the Company's Board of Directors, upon

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<PAGE> 27

receipt of a written opinion from its outside counsel, determines that failure
to do so would constitute a breach of the Board's fiduciary duty under
applicable law.

In the event the Company shall receive any such written offer or
proposal, directly or indirectly, of the type referred to in clause (a) or (c)
above, or any request for disclosure or access pursuant to clause (b) above,
the Company party shall immediately inform Parent as to all material facts
relating to any such offer or proposal (including the identity of the party
making such offer or proposal and the specific terms thereof) and will
cooperate with Parent by furnishing any information it may reasonably request.

4.3 Conduct of Business of Parent. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, the Parent agrees (except to the extent
that the Company shall otherwise consent in writing), that Parent shall
promptly notify the Company of any event or occurrence or emergency which is
not in the ordinary course of business of Parent and which is material and
adverse to the business of Parent. Parent shall not without the prior consent
of the Company (i) amend its Certificate of Incorporation in any manner which
would materially adversely affect the rights of holders of Parent Common Stock,
or (ii) issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock of any class or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, except for the issuance or proposed issuance of shares of its
capital stock or options to purchase shares of its capital stock (A) in
connection with a proposed business combination, (B) in connection with
privately negotiated sales of stock pursuant to corporate partnering
arrangements or (C) pursuant to stock option grants or exercises or other
employee stock benefit plans. Parent shall not take or agree in writing or
otherwise to take any action which would make any of the representations or
warranties of Parent contained in this Agreement untrue or incorrect or prevent
Parent from performing or cause Parent not to perform its covenants hereunder.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Resolutions of Company Shareholders. The Company shall
promptly after the date hereof take all action necessary in accordance with
California Law, and the Company's Articles of Incorporation and Bylaws to
prepare and solicit an Action By Written Consent of the Company Shareholders.
The Company shall use its best efforts to obtain the approval of the
shareholders of the Company for the Merger and shall take all other action
necessary or advisable to secure the vote or consent of its shareholders
required by California Law to effect the Merger.

5.2 Access to Information. The Company shall afford Parent and
its accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to

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<PAGE> 28

the Effective Time to (a) all of the Company's properties, books, contracts,
commitments and records, and (b) all other information concerning the business,
properties and personnel of the Company as Parent may reasonably request. The
Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
Parent shall provide the Company with copies of such publicly available
information about Parent as the Company may request and shall provide the
Company with reasonable access to its Chief Executive Officer, Vice President,
Marketing and Treasurer in this connection. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.

5.3 Expenses. In the event the Merger is not consummated, all
expenses incurred in connection with the Merger and this Agreement shall be the
obligation of the party incurring such expenses.

5.4 Public Disclosure. Unless otherwise required by law, prior to
the Effective Time no disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby
shall be made by any party hereto unless approved by Parent and the Company
prior to release, provided that such approval shall not be unreasonably
withheld, subject, in the case of Parent, to Parent's obligation to comply with
applicable securities laws.

5.5 Pooling Accounting. Parent and the Company shall each use its
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of Parent and the Company
shall use its best efforts to cause its Affiliates (as defined in Section 5.8)
not to take any action that would adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a pooling
of interests.

5.6 Consents. Each of Parent and the Company shall promptly apply
for or otherwise seek, and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
the Company shall use its best efforts to obtain all necessary consents,
waivers and approvals under any of the Company's material agreements,
contracts, licenses or leases in connection with the Merger. All such
necessary consents are set forth in Section 5.6 of the Company Disclosure
Schedule.

5.7 FIRPTA. Upon request by Parent after the Effective Time, the
Company shall use its best efforts to deliver to the Internal Revenue Service a
notice that it is not a "United States Real Property Holding Corporation" as
defined in and in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2).

5.8 Legal Requirements. Each of Parent, Merger Sub and the
Company will take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary
in connection

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<PAGE> 29

with any such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.

5.9 Blue Sky Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Parent Common Stock pursuant
hereto. The Company shall use its best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Common Stock
pursuant hereto.

5.10 Best Efforts; Additional Documents and Further Assurances.
Each of the parties to this Agreement shall each use its best efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each party hereto,
at the reasonable request of another party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.

5.11 Stock Options.

(a) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "Company Incentive Option")
under the Company Stock Option Plan, whether vested or unvested, will be
assumed by Parent. Each Company Incentive Option so assumed by Parent under
this Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Option Plan and applicable stock
option agreements immediately prior to the Effective Time, except that (i) such
Company Incentive Option will be exercisable for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Incentive Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock, and
(ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Incentive Option will be equal
to the quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Incentive Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent.

(b) After the Effective Time, Parent will issue to each
holder of an outstanding Company Incentive Option a document evidencing the
foregoing assumption of such Company Incentive Option by Parent.

(c) It is the intention of the parties that the Company
Incentive Options assumed by Parent qualify following the Effective Time as
incentive stock options as defined in Section 422

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<PAGE> 30

of the Code to the extent the Company Incentive Options qualified as incentive
stock options prior to the Effective Time.

5.12 Indemnification. Parent shall either (i) cause the Company to
continue to indemnify or (ii) directly indemnify the persons who are currently
officers and directors of the Company substantially in accordance with the
Bylaws of the Company as they are currently in effect for action or inaction by
such person prior to the Merger. For so long as the insurer under the
Company's officer and director indemnification insurance policy is willing to
continue such insurance policy after the Merger at approximately the same
premium as currently in effect, the Parent shall continue such policy in effect
until the third anniversary of the Closing.

5.13 Option Agreements. The Company will use its best efforts to
obtain, prior to Closing, option agreements signed by the grantees of all
options granted under the Company Incentive Option Plan.

5.14 Registration Rights Agreement. Concurrently herewith, Parent
and the Shareholders are entering into the Registration Rights Agreement
substantially in the form attached hereto as Exhibit D.

ARTICLE VI

CONDITIONS TO THE MERGER

6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:

(a) Shareholder Approval. This Agreement and the Merger
shall have been approved and adopted by the requisite vote of the shareholders
of the Company and the sole shareholder of Merger Sub.

(b) Board Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the Board of Directors
of the Company, Parent and Merger Sub.

(c) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting the operation of the business of the Company following the Merger
shall be in effect, nor shall any proceeding brought by an administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing be pending; nor shall there
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal.

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(d) Employment and Non-Competition Agreements. Parent
shall have entered into employment and non-competition agreements with Mark
Klein, Dana Keen, Wendell Brown, Joshua Solomon and Edgar Tu substantially in
the forms attached hereto as Exhibit E-1 and with Mark Carlson substantially in
the form attached hereto as Exhibit E-2.

(e) Approval. Parent, Company and Merger Sub shall have
timely obtained all necessary approvals from Governmental Entities.

(f) Affiliate Agreements. Each party shall have received
from each of the Affiliates of the Company an executed Affiliate Agreement in
the form attached hereto as Exhibit F.

(g) Tax Representations. The parties shall have received
from the Company's Shareholders continuity of interest representation letters
substantially in the form attached hereto as Exhibit G covering an aggregate of
50% of the shares of Parent Common Stock to be issued in the Merger.

6.2 Additional Conditions to Obligations of Company. The
obligations of the Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by the Company:

(a) Representations, Warranties and Covenants. The
representations and warranties of Parent in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and Parent
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.

(b) Certificate of Parent. The Company shall have been
provided with a certificate executed on behalf of Parent by its President or
its Chief Financial Officer or Treasurer to the effect that, as of the
Effective Time:

(i) all representations and warranties made by
Parent and Merger Sub under this Agreement are true and complete in all
material respects;

(ii) all covenants, obligations and conditions of
this Agreement to be performed by Parent and Merger Sub on or before such date
have been so performed in all material respects; and

(iii) the transactions contemplated by this
Agreement have been approved by the Board of Directors of Parent.

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<PAGE> 32

(c) Legal Opinion. The Company shall have received a
legal opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Parent, substantially in the form of Exhibit H hereto.

(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the business, properties, results of
operations or financial condition of Parent since the date hereof.

(e) Tax Representation Certificate. The Company shall
have received from Parent and Merger Sub an executed tax representation
certificate in the form attached hereto as Exhibit K.

6.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:

(a) Representations, Warranties and Covenants. The
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of such time and the
Company shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.

(b) Certificate of the Company. Parent shall have been
provided with a certificate executed on behalf of the Company by its President
to the effect that, as of the Effective Time:

(i) all representations and warranties made by
the Company under this Agreement are true and complete in all material
respects;

(ii) all covenants, obligations and conditions of
this Agreement to be performed by the Company on or before such date have been
so performed in all material respects; and

(iii) attached to such certificate are true and
correct copies of the Company's Articles of Incorporation, as certified by the
California Secretary of State, Bylaws and resolutions of the Company's Board of
Directors and Shareholders approving the transactions contemplated by this
Agreement.

(c) Third Party Consents. Parent shall have been
furnished with evidence satisfactory to it of the consent or approval of those
persons whose consent or approval shall be required in order to assign the
agreements listed pursuant to Section 5.7.

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(d) Legal Opinion. Parent shall have received a legal
opinion from Fenwick & West LLP, legal counsel to the Company, in substantially
the form of Exhibit I.

(e) No Material Adverse Changes. There shall not have
occurred any material adverse change in the business, properties, results of
operations or financial condition of the Company since March 24, 1997;

(f) Dissenters. Holders of not more than 5% of the
outstanding Company Common Stock shall have exercised, or shall continue to
have the right to exercise, dissenters' rights with respect to the transactions
contemplated by this Agreement.

(g) Stock Restriction Agreement. Each Shareholder shall
have executed a Stock Restriction Agreement substantially in the form attached
hereto as Exhibit B.

(h) Resignation of Current Directors and Officers of the
Company. Parent shall have received letters of resignation of all of the
directors and officers of the Company effective as of the Effective Time.

ARTICLE VII

SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

7.1 Survival of Representations and Warranties. All
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue for a period
of six (6) months after the Effective Time, subject to Section 7.3 hereof;
provided, however, that as to the Shareholders the representations and
warranties relating or pertaining to Taxes set forth in Section 2.8 hereof,
shall survive until ninety (90) days following the expiration of all applicable
statutes of limitations governing the Company's Taxes or Returns.

7.2 Agreement to Indemnify. The Shareholders, severally but not
jointly, hereby agree to indemnify and hold Parent and its affiliates harmless
against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses of investigation
(hereinafter individually a "Loss" and collectively "Losses"), in excess of
$25,000 in the aggregate incurred by Parent as a result of any breach of a
representation or warranty of the Company contained in Article II herein, or
any failure by the Company to perform or comply with any covenant contained
herein; provided, that no such representation or warranty shall be deemed
breached (for purposes of this Article VII only and not for purposes of the
conditions to the obligations of Parent to effect the Merger under Article VI)
with respect to information disclosed in the Company Disclosure Schedule
delivered by the Company at the Closing to the extent such schedule provides
exceptions to any representation or warranty. Parent shall be entitled to
recover from the Escrow Fund as defined in Section 7.4 hereof, for any Loss
pursuant to the terms hereof.

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7.3 Expiration of Indemnification.

(a) Except as otherwise provided in Section 7.3(b), the
indemnification obligations of the Shareholders under Section 7.2 shall
terminate at 5:00 p.m., Pacific Standard Time on the six month anniversary of
the Effective Time but shall not terminate as to any Loss asserted in good
faith pursuant to Section 7.8 prior to such date.

(b) The indemnification obligations of the Shareholders
under Section 7.2 related to Taxes or a breach of the representations and
warranties contained in Section 2.8 shall terminate 90 days following the
expiration of all applicable statutes of limitations relating to Taxes subject
to the claim of indemnification hereunder, but shall not terminate as to a Loss
(or a potential claim by an appropriate party) asserted in good faith prior to
such date; provided however that no claim for indemnification with regard to
the Shareholders shall terminate with respect to any Loss arising due to any
willful or grossly negligent breach of any representation or warranty contained
in Section 2.8.

7.4 Escrow Fund.

(a) As security for the indemnity provided for in Section
7.2 hereof and by virtue of this Agreement and the Merger Agreement the
Shareholders will be deemed to have received and deposited with the Escrow
Agent (as defined below) [ ] shares of Parent Common Stock issued in the
Merger (plus any additional shares as may be issued upon any stock split
effected after the Closing) ("Escrow Shares"), without any act of any
Shareholder. Such shares will be registered in the name of Mark Carlson, and
will be deposited with, Wilson Sonsini Goodrich & Rosati, Professional
Corporation, (or other mutually acceptable institution) as Escrow Agent (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund")
to be governed by the terms set forth herein and at Parent's sole cost and
expense. The number of shares of Parent Common Stock in the Escrow Fund
contributed by each Shareholder is listed opposite such Shareholder's name on
Exhibit A-1.

(b) Upon compliance with and subject to the terms hereof,
Parent shall be entitled to indemnity for all Losses incurred by Parent from
the Escrow Fund. Each such indemnity will be allocated among the Shareholders
in the same proportion as the number of Escrow Shares set forth opposite such
Shareholder's name on Exhibit A. Such indemnity shall result in a forfeiture
of Escrow Shares as set forth in this Article VII.

7.5 Termination of Escrow Fund. Subject to the resolution of
pending claims asserted pursuant to Section 7.8 prior to the expiration of the
Escrow Fund and the resolution of conflicts arising from such claims under
Section 7.10(c) hereof, the Escrow Fund shall remain in existence during the
period of time (the "Escrow Period") between the effectiveness of the Merger
and 5:00 p.m. Pacific Standard Time on the six month anniversary of the
Effective Date.

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7.6 Protection of Escrow Fund. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of Parent and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.

7.7 Distributions; Voting.

(a) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a
stock split) ("New Shares") in respect of Parent Common Stock in the Escrow
Fund which have not been released from the Escrow Fund pursuant to Section 7.11
shall be added to the Escrow Fund and become a part thereof. New Shares issued
in respect of shares of Parent Common Stock which have been released from the
Escrow Fund shall not be added to the Escrow Fund, but shall be distributed to
the holders thereof. Cash dividends on Parent Common Stock shall not be added
to the Escrow Fund.

(b) Each Shareholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such Shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock).

7.8 Claims Upon Escrow Fund.

(a) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "Officer's Certificate"):

(i) stating that Parent has paid or properly
accrued or reasonably anticipates that it will have to pay Losses in an
aggregate stated amount to which Parent is entitled to indemnity pursuant to
this Agreement, and

(ii) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or claim to which
such item is related, the Escrow Agent shall, subject to the provisions of
Sections 7.9 and 7.10 hereof, deliver to Parent out of the Escrow Fund, as
promptly as practicable, shares of Parent Common Stock held in Escrow Fund in
an amount equal to such Losses as indemnity; provided, however, that with
respect to Losses Parent reasonably anticipates it will have to pay, Escrow
Shares shall not be delivered to Parent by the Escrow Agent until such time as
Parent actually must pay such Losses.

(b) For the purposes of determining the number of shares
of Parent Common Stock to be delivered to Parent out of the Escrow Fund, as
indemnity pursuant to Section 7.8(a), the shares of Parent Common Stock shall
be valued at the fair market value as of the Effective Time. "Fair market
value" shall be the average of the closing prices of Parent's Common Stock on
the principal securities exchange on which Parent's Common Stock is then
traded, or if not so traded, the

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<PAGE> 36

National Market System of the National Association of Securities Dealers
Automated Quotation system, in either case as reported in The Wall Street
Journal for the twenty trading days ending the day before the Effective Time.
Parent and the Company shall certify such fair market value in a certificate
signed by both Parent and the Company at the Closing, and shall deliver such
certificate to the Escrow Agent.

7.9 Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
simultaneously shall be delivered to each Agent (defined in Section 7.12 below)
and for a period of thirty (30) days after such delivery to the Agent, the
Escrow Agent shall make no delivery of shares of Parent Common Stock pursuant
to Section 7.8 hereof unless the Escrow Agent shall have received written
authorization from the Agent to make such delivery. After the expiration of
such thirty (30) day period, the Escrow Agent shall make delivery of the shares
of Parent Common Stock in the Escrow Fund required pursuant to Section 7.8,
provided that no such payment, delivery or reduction may be made if the Agent
shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.

7.10 Resolution of Conflicts.

(a) In case the Agent shall so object in writing to the
indemnity of Parent in respect of any claim or claims made in any Officer's
Certificate, the Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Agent and Parent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute shares of Parent Common Stock from the Escrow Fund in
accordance with the terms thereof.

(b) If no such agreement can be reached after good faith
negotiation, attempts at resolution will be made by a person to person meeting
between the president of Parent and the Agent. If the Parents and the Agent
cannot reach agreement within two (2) business days after such meeting, Parent
shall within five (5) additional business days submit the claims at issue to
binding arbitration under the then effective rules of commercial arbitration of
the American Arbitration Association ("AAA"). If Parent does not timely submit
such dispute to AAA then, after the expiration of the five (5) business day
period, the applicable Officer's Certificate(s) will be deemed withdrawn by
Parent and shall not be the basis for the Escrow Agent withholding any Escrow
Shares at the end of the Escrow Period. Any arbitration initiated under this
Section 7.10(b) shall be concluded within sixty (60) calendar days from the
date that it is submitted to AAA.

Notwithstanding the foregoing, either or Parent or the Agents are free
to initiate litigation in court, but only to the extent necessary to seek a
temporary restraining order or other equivalent emergency injunction relief.
Thereafter, the matter shall be stayed and resolved in the arbitration as set
forth above. In the event any litigation is initiated in compliance with this
Section, the parties agree jointly to stipulate to the arbitration or court
that all proceedings in such action be kept

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<PAGE> 37

confidential. The Escrow Agent shall be entitled to act in accordance with any
final decision of the arbitrator or court and make or withhold payments out of
the Escrow Fund in accordance therewith.

(c) Any litigation initiated pursuant to Section 7.10(b)
shall be brought in the state or federal courts of Santa Clara County,
California. The non-prevailing party to any arbitration or litigation shall
pay its own expenses and the reasonable expenses, including without limitation,
reasonable attorneys' fees and costs, incurred by the other party to the
arbitration or litigation. If the Shareholders are the non-prevailing party,
the Parent shall be entitled to recover such expenses solely from the Escrow
Fund pursuant to the allocation provisions of Section 7.4(c). Unless the
Escrow Fund is otherwise exhausted, the Agent shall also be entitled to recover
the reasonable expenses, including without limitation reasonable attorney's
fees and costs, actually incurred by him on behalf of the Shareholders in the
event that the Shareholders are the non-prevailing party after the expiration
of the Escrow Period and subject to any outstanding but unresolved claims
asserted pursuant to the provisions of Section 7.8. In such event, Agent shall
deliver a written notice ("Expense Notice") concurrently to Escrow Agent and
each Shareholder on the date the Escrow Period expires (the "Expiration Date"),
indicating the amount and nature of expenses incurred by Agent. Escrow Agent
shall be entitled to rely on such Expense Notice, and each Shareholder
acknowledges and agrees that Escrow Agent is directed and authorized to deliver
to Agent such number of Escrow Shares (or an equivalent amount of Escrow Cash,
as defined in Section 7.18 below, or any combination thereof), valued at fair
market value, as defined in Section 7.8(b) above, to cover Agent's expenses
promptly upon receipt of the Expense Notice. In the event that the Escrow Fund
is exhausted before the Agent can recover all such expenses, the other
Shareholders agree to contribute their pro rata share (calculated based on the
respective percentages of Escrow Shares they have).

7.11 Distribution Upon Termination of Escrow Period. Subject to
the resolution of pending claims asserted pursuant to Section 7.8 and the
resolution of conflicts arising from such claims under Section 7.10(c) hereof
promptly following termination of the Escrow Period, the Escrow Agent shall
deliver to the Shareholders all of the Parent Common Stock in the Escrow Fund.
As soon as all such claims have been resolved in accordance with the provisions
of this Article VII, the Escrow Agent shall deliver to the Shareholders all
Parent Common Stock remaining in the Escrow Fund; provided, however, that to
the extent that such claims are for amounts that are less than the amounts
represented by the remaining Escrow Shares, then at the expiration of the
Escrow Period, the Escrow Agent shall deliver to the Shareholders that number
of shares of Parent Common Stock remaining in the Escrow Fund in excess of the
number necessary to secure Parent's indemnification rights against the Escrow
Shares arising from such claims.

7.12 Agent of the Shareholders; Power of Attorney.

(a) At the Effective Time Hilding Mark Carlson (the
"Agent") shall be constituted and appointed as agent and attorney-in- fact for
each Shareholder for purposes of this Article VII only to give and receive
notices and communications, to authorize delivery to Parent of Parent Common
Stock, cash or other property from the Escrow Fund in satisfaction of claims by
Parent, to object to

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<PAGE> 38

such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand dispute resolution pursuant to Section 7.10 and comply with
orders of courts with respect to such claims, and to take all actions necessary
or appropriate in the judgment of the Agent for the accomplishment of the
foregoing. No bond shall be required of the Agent, and the Agent shall receive
no compensation for his services. Notices or communications to or from the
Agent shall constitute notice to or from each of the Shareholders. If Hilding
Mark Carlson shall die or otherwise become incapable of fulfilling his
obligations as Agent hereunder, Mark Klein, or another person designated by
such holders of a majority in interest of the Escrow Shares, voting together,
shall be the Agent.

(b) The Agent shall not be liable for any act done or
omitted hereunder as Agent while acting in good faith and in the exercise of
reasonable judgment. The Shareholders shall jointly and severally indemnify
the Agent and hold the Agent harmless against any loss, liability or expense
incurred without negligence or bad faith on the part of the Agent and arising
out of or in connection with the acceptance or administration of the Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Agent.

7.13 Actions of the Agent. A decision, act, consent or instruction
of the Agent with regard to the Article VII only shall constitute a decision of
all the Shareholders, and shall be final, binding and conclusive upon each of
the Shareholders, and the Escrow Agent and Parent may rely upon any decision,
act, consent or instruction of Agent as being the decision, act, consent or
instruction of each and all of the Shareholders. The Escrow Agent and Parent
are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the Agent.

7.14 Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund pursuant to Section 7.8, Parent shall notify the Agent of such
claim, and the Agent and the Shareholders shall be entitled, at their expense,
to participate in any defense of such claim. Parent shall have the right in
its sole discretion to settle any such claim; provided, however, that except
with the consent of Agent, no settlement of any such claim with third-party
claimants shall alone be determinative of the amount of liability of the
Shareholders. In the event that Agent has consented pursuant to Section 7.13
to any such settlement and agreed in writing that a specified amount of the
claim may be applied against the Escrow Fund, the Agent shall have no power or
authority to object under Section 7.8 or any other provision of this Article
VII to the amount of such claim by Parent against the Escrow Fund under Section
7.8 for indemnity with respect to such settlement.

7.15 Escrow Agent's Duties.

(a) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Agent, and may rely and shall be protected in relying or
refraining from acting on

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<PAGE> 39

any instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good
faith and in the exercise of reasonable judgment, and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence of such good
faith.

(b) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.

(c) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.

(d) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.

7.16 No Joint Liability; Maximum Liability. The liability of the
Shareholders under this Article VII shall be several and not joint, and
liability for any indemnification to which Parent may be entitled under this
Article VII shall be apportioned among the Shareholders in the proportions set
forth on Exhibit A. Except as provided in Section 7.17, the total liability of
the Shareholders under this Article VII for Losses shall not exceed the fair
market value of the shares of Parent Common Stock constituting the Escrow Fund.
For purposes of this Section 7.16, "fair market value" shall have the same
meaning as in Section 7.8. Except as set forth in Section 7.17, Parent agrees
that it will look solely to the Escrow Fund for the satisfaction of its claims
under the indemnity provided in Section 7.2 and agrees that no Shareholder
shall be personally liable with respect to such claims beyond the interest of
such Shareholder in the Escrow Fund; provided, however, that if Parent suffers
a Loss for which it is entitled to indemnification under Section 7.3(b) after
the termination and distribution of the Escrow Fund pursuant to Section 7.11,
each Shareholder shall remain severally, but not jointly, liable for such
Shareholder's proportionate share of such Loss, to the extent (but only to the
extent) of the fair market value of the shares of Parent Common Stock
previously distributed to such Shareholder from the Escrow Fund pursuant to
Section 7.11.

7.17 Remedies. The indemnity set forth in this Article VII and the
Escrow Fund provided for herein are intended by the parties to this Agreement
to apply only to those items for which indemnity is specifically provided in
Section 7.2 and except as otherwise provided in this Section 7.17, resort to
the Escrow Fund shall be the exclusive remedy of Parent for any Losses. The
existence of this Article VII and of the rights and restrictions set forth
herein do not limit any other

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<PAGE> 40

potential remedies of Parent with respect to any knowing, intentional and
material misrepresentations of the Company, made in or pursuant to Article II
or Article III hereof, respectively on which Parent reasonably relied to its
detriment.

7.18 Exchange of Collateral. A Shareholder may, at his or her
option at any time before Escrow Shares are delivered to Parent out of the
Escrow Fund pursuant to a claim made under Section 7.8, deposit with the Escrow
Agent an equivalent value, based upon the "fair market value" of such Escrow
Shares as defined in Section 7.8, of cash, U.S. Treasury securities or triple-A
rated state and local government general obligation bonds ("Escrow Cash") in
exchange for all of the Escrow Shares held for such Shareholder in the Escrow
Fund. In any such case, all references to the Escrow Shares and distributions
thereof in this Article VII shall, as to such Shareholder, be deemed to refer
instead to such Shareholder's Escrow Cash and distributions thereof.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:

(a) by mutual written consent of the Company and Parent;

(b) by Parent if (i) it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and such breach has not been cured within five business
days after written notice to the Company or (ii) there shall be any final
action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity, which
would prohibit Parent's or the Company's ownership or operation of all or a
material portion of the business of the Company, or compel Parent or the
Company to dispose of or hold separate all or a material portion of the
business or assets of the Company or Parent as a result of the Merger.

(c) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and such breach has not been cured within five
days after written notice to Parent;

(d) by any party hereto if: (i) the Closing has not
occurred by May 31, 1997; (ii) there shall be a final, non-appealable order of
a federal or state court in effect preventing consummation of the Merger; (iii)
there shall be any final action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any

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Governmental Entity which would make consummation of the Merger illegal; or
(iv) if the Company's Shareholders do not approve the Merger.

Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.

8.2 Effect of Termination.

(a) In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or the Shareholders or their respective officers, directors or
Shareholders, except to the extent that such termination results from the
breach by a party hereto of any of its representations, warranties, covenants
or agreements set forth in this Agreement.

8.3 Amendment. This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.

8.4 Extension; Waiver. At any time prior to the Effective Time
any party hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.

ARTICLE IX

GENERAL PROVISIONS

9.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via telecopy to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):

(a) if to Parent or Merger Sub, to:

CyberMedia, Inc.
3000 Ocean Park Boulevard, Suite 2001
Santa Monica, CA 90405
Attention: Unni S. Warrier

-36-
<PAGE> 42

with a copy to:

Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.

(b) if to the Company, to:

Walk Softly, Inc.
180 Crescent Avenue
Portola Valley, CA 94028
Attention: H. Mark Carlson

with a copy to:

Fenwick & West LLP
2 Palo Alto Square, Suite 400
Palo Alto, CA 94306
Attention: Mark C. Stevens, Esq.

(d) if to the Agent:

Mark Carlson
180 Crescent Avenue
Portola Valley, CA 94028

(e) if to the Escrow Agent, to:

Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Arthur F. Schneiderman, Esq.

9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

-37-
<PAGE> 43
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

9.4 Miscellaneous. This Agreement and the documents and
instruments and other agreements among the parties hereto including all lists
and statements separately certified in writing by the Company or Parent (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise
except as otherwise specifically provided.

9.5 Governing Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California. All parties hereto agree to submit to the jurisdiction of
the federal and state courts of the State of California, and further agree that
service of documents commencing any suit therein may be made as provided in
Section 9.1.

9.6 Attorneys' Fees. Except as otherwise provided in Article VII,
if any party to this Agreement brings an action against another party to this
Agreement to enforce its rights under this Agreement, the prevailing party
shall be entitled to recover its reasonable costs and expenses, including
attorneys' fees and costs, incurred in connection with such action, including
any appeal of such action.

9.7 Resolution of Disputes; Stipulation Regarding Confidentiality.
Except as otherwise provided in Article VII, the parties hereto each agree to
work together in good faith to resolve any disputes which may arise under this
Agreement. Such attempts at resolution will be made at the level of a person
to person meeting between the presidents of Parent and the Company, the
Shareholders and the Agent. Each party agrees that it will not initiate any
litigation against any other party hereto regarding the subject matter of this
Agreement for at least sixty (60) days following such person to person meeting
between the presidents of Parent and the Company, the Shareholders and the
Agent except for (i) motions for a temporary restraining order or other
preliminary equitable relief and (ii) circumstances in which a delay for such
period would result in such action being barred as a result of the relevant
statute of limitations expiring. In the event any litigation is initiated in
compliance with this Section, the parties agree jointly to stipulate to the
court that all proceedings in such action be kept confidential.

9.8 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.

-38-
<PAGE> 44
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Shareholders
(as to Article VII only), the Agent and the Escrow Agent (as to matters set
forth in Article VII only) have caused this Agreement to be signed by
themselves or their duly authorized respective officers, all as of the date
first written above.

CYBERMEDIA, INC.

By:__________________________________
Unni S. Warrier, President and
Chief Executive Officer

WALK SOFTLY, INC.

By:__________________________________
Hilding Mark Carlson, President

WS ACQUISITION CORP.

By:__________________________________
Unni S. Warrier, President and
Chief Executive Officer

HILDING MARK CARLSON

_____________________________________

MARK DAVID KLEIN

_____________________________________

WENDELL BROWN

_____________________________________

DANA KEEN

<PAGE> 45

_____________________________________

EDGAR TU

_____________________________________

JOSHUA SOLOMON

_____________________________________

FENWICK & WEST LLP

By:__________________________________
Name:
Title:

WILSON SONSINI GOODRICH & ROSATI
as Escrow Agent

By:__________________________________
Arthur F. Schneiderman

AGENT OF SHAREHOLDERS

By:__________________________________
Hilding Mark Carlson

<PAGE> 1

EXHIBIT 21.1

CYBERMEDIA INC.
SUBSIDIARIES OF CYBERMEDIA

Name of Subsidiary State or Country of Incorporation
- ------------------ ---------------------------------

CyberHelp Ltd. Ireland
CyberMedia KK Japan

<PAGE> 1

EXHIBIT 23.1

To the Board of Directors of CyberMedia, Inc.

We consent to incorporation by reference in the registration statements
(No. 333-20113 and 333-44961) on Form S-8 of CyberMedia, Inc., of our report
dated March 25, 1998, relating to the consolidated balance sheets of CyberMedia,
Inc., as of December 31, 1997 and 1996 and the related consolidated statements
of operations, cash flows and stockholders' equity for each of the years in the
three-year period ended December 31, 1997, which report appears in the December
31, 1997, annual report on Form 10-K of CyberMedia, Inc.

KPMG Peat Marwick, LLP

Long Beach, California
March 30, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS IN THE PERIOD ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,059
<SECURITIES> 1,001
<RECEIVABLES> 36,091
<ALLOWANCES> 16,240
<INVENTORY> 3,590
<CURRENT-ASSETS> 55,628
<PP&E> 5,165
<DEPRECIATION> 974
<TOTAL-ASSETS> 60,103
<CURRENT-LIABILITIES> 22,050
<BONDS> 0
0
0
<COMMON> 57,713
<OTHER-SE> (21,069)
<TOTAL-LIABILITY-AND-EQUITY> 60,103
<SALES> 71,227
<TOTAL-REVENUES> 71,227
<CGS> 14,477
<TOTAL-COSTS> 14,477
<OTHER-EXPENSES> 67,078
<LOSS-PROVISION> 393
<INTEREST-EXPENSE> (1,191)
<INCOME-PRETAX> (9,158)
<INCOME-TAX> 2,582
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